Optimal fiscal policy with environmental tax and pollution abatement spending in a model with utility-enhancing environmental quality: lessons from Bulgaria

Aleksandar Vasilev

Macroeconomics and Finance in Emerging Market Economies, 2019, vol. 12, issue 1, 24-35

Abstract: This paper characterized optimal fiscal policy in the presence of pollution, and evaluated it relative to the observed one in Bulgaria. To this end, a dynamic general-equilibrium model is calibrated to Bulgarian data. The main findings are: (i) The optimal steady-state income tax rate is zero; (ii) the benevolent Ramsey planner provides 20% higher utility-enhancing environmental quality; (iii) the optimal level of carbon taxes is almost three times higher, and the optimal level of abatement spending is six times higher; (iv) the optimal steady-state consumption tax is twice lower.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:taf:macfem:v:12:y:2019:i:1:p:24-35

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DOI: 10.1080/17520843.2018.1522360

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