Environmental Fiscal Reform and Fiscal Consolidation: The Quest for the Third Dividend in Portugal

Alfredo Pereira and Rui Pereira

No 114, Working Papers from Department of Economics, College of William and Mary

Abstract: This paper explores the capacity for environmental fiscal reform to reduce CO2 emissions, stimulate economic performance, and promote fiscal sustainability. Simulation results suggest that reforms based on CO2 taxation stimulate GDP when tax revenues are used to promote private or public investment and stimulate employment when used to finance reductions in personal income taxation or firms' social security contributions. More generally, reforms allow for reductions in the costs of climate policy, a weaker realization of the second dividend. In addition, several reforms lead to reductions in public debt, the realization of a third dividend. When political constraints on reducing public spending are considered, however, this third dividend only materializes when revenues finance public investment or reductions in the firms' social security contributions. Overall, our results suggest that low growth and high public debt need not be regarded as hindrances for environmental fiscal reform but can actually be seen as catalysts.

Keywords: Carbon Tax; Environmental Fiscal Reform; Endogenous Growth; Budgetary Consolidation. (search for similar items in EconPapers)
JEL-codes: D58 H63 O44 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2013-06-01
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-ene, nep-env and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:cwm:wpaper:114

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