Energy Taxation Reform with an Environmental Focus

Alfredo Pereira and Rui Pereira

No 134, GEE Papers from Gabinete de Estratégia e Estudos, Ministério da Economia

Abstract: In this paper, we address the issue of energy taxation reform with an environmental focus. We do so using a multi-sector and multi-household dynamic computable general equilibrium model of the Portuguese economy. We analyze the environmental, macroeconomic, and distributional effects of different policies allowing for energy taxation to be replaced with carbon taxation while at the same time allowing for the IPCC 2018 emissions reduction targets to be achieved. Our analysis indicates a clear path in the quest for decarbonization. First, replace energy taxes with a carbon tax; second, adopt the levels of carbon taxation necessary to achieve the emissions goals; third, use extra tax revenues from the carbon tax to reverse any potential adverse macroeconomic and distributional effects of the carbon taxation. In the process, this would be a way around the pervasive problem of perverse fossil fuel subsidies, which would effectively disappear and as such would improve the efficiency of the tax system.

Keywords: Energy taxes; Perverse Fossil Fuel Subsidies; CO2 Taxation; Macroeconomic Effects; Distributional Effects; Dynamic Computable General Equilibrium; Portugal (search for similar items in EconPapers)
JEL-codes: C68 E62 H23 Q43 Q48 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2018-10, Revised 2018-10
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https://www.gee.gov.pt//RePEc/WorkingPapers/GEE_PAPERS_134.pdf First version, 2019 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:mde:wpaper:00134

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