Using energy and emissions taxation to finance labor tax reductions in a multi-sector economy

Natascha Hinterlang, Anika Martin, Oke Röhe, Nikolai Stähler and Johannes Strobel

Energy Economics, 2022, vol. 115, issue C

Abstract: In this paper, we introduce an environmental multi-sector dynamic general equilibrium model to analyze the effects of financing a labor tax reduction through higher consumption, energy or emissions taxation. Employing a closed-economy framework calibrated for the EU-27 plus the UK, we find that, for sufficiently high environmental damage, using taxes on brown energy consumption or output-based emissions taxes as financing instrument eventually outperforms the application of consumption taxes due to a positive productivity-like shock. However, it takes time for the positive effects to materialize. Manufacturing, transportation and brown energy production sectors tend to lose (or gain only marginally) while administration, services and research sectors tend to benefit from the introduction of an environmental taxation as a financing instrument. As demand moves towards sectors less affected by the tax shift, the aggregate economic effects differ in the multi-sector economy compared to a conventional one-sector economy.

Keywords: Dynamic general equilibrium model; Sectoral heterogeneity; Environmental policy; Production linkages (search for similar items in EconPapers)
JEL-codes: E32 E60 E62 H32 Q58 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988322005102
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:115:y:2022:i:c:s0140988322005102

DOI: 10.1016/j.eneco.2022.106381

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().