Achieving the Triple Dividend in Portugal: A Dynamic General-Equilibrium Evaluation of a Carbon Tax Indexed to Emissions Trading

Alfredo Pereira and Rui Pereira

No 155, Working Papers from Economics Department, William & Mary

Abstract: Using an applied dynamic general-equilibrium model, we simulate the environmental, economic, and budgetary effects in Portugal of a new carbon tax indexed to the carbon price in the EU-ETS market. Through careful recycling of the carbon-tax revenues to finance lower personal income taxes, lower Social Security contributions, and higher investment tax credits - in particular when these changes are directed at promoting energy efficiency - we show that a carbon tax reform can yield three dividends of a long-lasting nature: a reduction in emissions, better economic performance, and a stronger budgetary position. Thus, we show that it is possible to design a politically-feasible carbon tax reform that not only boosts economic growth and strengthens fiscal consolidation, but also accommodates the legitimate needs of different stakeholders: interest groups that target environmental goals, households focused distributional issues, and businesses concerned with international competitiveness. These views were fully incorporated in a draft bill presented to the Portuguese Government in September 2014 by the Commission for Environmental Tax Reform [CRFV (2014)]. Based on these recommendations, a new indexed carbon tax was then approved by Parliament, and enacted on January 1st, 2015.

Keywords: Carbon Taxation; Economic Effects; Budgetary Effects; Three Dividends; Dynamic General- Equilibrium; Endogenous Growth; Portugal. (search for similar items in EconPapers)
JEL-codes: D58 H63 O44 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-07-05
New Economics Papers: this item is included in nep-dge, nep-ene, nep-env and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Achieving the triple dividend in Portugal: a dynamic general-equilibrium evaluation of a carbon tax indexed to emissions trading (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:cwm:wpaper:155

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