How significant are fiscal interactions in climate policy design? A CGE analysis

Sara Proenca, Patricia Fortes

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

A major challenge facing policy makers in climate policy design is how to reduce greenhouse gas emissions at the lowest cost to the economy. The interactions of climate change policies with the tax system become relevant in this context. This paper investigates these interactions, by analyzing the impacts, both at the macroeconomic and sectoral levels, of the distinct redistribution of carbon tax revenues to the economy. To this end, numerical simulations with a hybrid computable general equilibrium model (HyBGEM) are performed. Results indicate that the whole economic impacts of a carbon tax are largely dependent on the fiscal revenue recycling mechanism chosen. A well-designed carbon tax could play a significant role in addressing the challenges posed by climate change mitigation at the least cost to the economy. In a distorted economy like Portugal, there is no efficiency gain in using carbon tax revenues to cut pre-existing distortionary taxes.

Original languageEnglish
Title of host publication2016 13th International Conference on the European Energy Market, EEM 2016
PublisherIEEE Computer Society
Volume2016-July
ISBN (Electronic)978-150901297-8
DOIs
Publication statusPublished - 25 Jul 2016
Event13th International Conference on the European Energy Market, EEM 2016 - Porto, Portugal
Duration: 6 Jun 20169 Jun 2016

Conference

Conference13th International Conference on the European Energy Market, EEM 2016
CountryPortugal
CityPorto
Period6/06/169/06/16

Keywords

  • Carbon tax
  • Computable general equilibrium analysis
  • Economic impacts
  • Policy interactions
  • Tax revenue recycling

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  • Cite this

    Proenca, S., & Fortes, P. (2016). How significant are fiscal interactions in climate policy design? A CGE analysis. In 2016 13th International Conference on the European Energy Market, EEM 2016 (Vol. 2016-July). [7521267] IEEE Computer Society. https://doi.org/10.1109/EEM.2016.7521267