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A fiscal reform is defined as ecological when it shifts the burden of taxation from, namely, labour and capital, to polluting activities, such as energy consumption, in order to obtain a double dividend: a better environmental quality and a less distortionary fiscal system.

A fiscal reform is defined as ecological when it shifts the burden of taxation from, namely, labour and capital, to polluting activities, such as energy consumption, in order to obtain a double dividend: a better environmental quality and a less distortionary fiscal system.

The project analyses and compares the potential of ecological tax reforms in three countries: Denmark, Italy and Sweden. In particular, the project aims at investigating the role of imperfect compliance and enforcement costs when such reforms are introduced. Computable General Equilibrium (CGE) models of the three economies are developed and used as main tools for the analysis. Policy conclusions are drawn from the comparison of results across the three countries.

FEEM is in charge of the analysis for Italy and participates in drawing the final policy conclusions.

The idea of a fiscal reform that, on the one hand, introduces or increases taxes on activities degrading natural resources or the environment and, on the other hand, uses the revenues to decrease taxes on other bases, mainly labour and capital income, has been debated since the beginning of 1990s. The scope is to obtain a double dividend: a better environmental quality and a less distortionary fiscal system.

A reform of this sort was put forward in the European Commission’s ‘White Paper on Growth, Employment and Competitiveness’, also known as Delors’ plan, of 1993. The hypothesis of a ‘double dividend’ has been widely debated among environmental economists, green activists and policy makers. The existence of a double dividend has been challenged and the conditions under which may or may not exist have been analysed. In this debate, GREEN TAXES analyses the potential for ecological tax reforms in Denmark, Sweden and Italy, taking into account the role of imperfect compliance and enforcement costs.These two factors have been neglected in the empirical and theoretical literature.

The following specific questions are addressed to each country:

  • which are the potential impacts on environment, unemployment and growth of green taxes on different types of environmental uses such as taxes on emission of pollutants, various land uses, inputs into production and consumer good?
  • how sensitive are the sizes of the different tax bases for changes in the tax rates?
  • are there differences in various green tax systems, charges and permit markets, with respect to their impact on the environment, unemployment and growth?

Country-studies are carried out in four articulate steps:

  • investigation of enviromental problems and associated causes;
  • partial models of different economic sectors;
  • computable general equilibrium models and policy analysis and;
  • analyses of enforcement institutions.

    • Methodology
    A Computable General Equilibrium model for each economy has been developed and used as the main tools for the analysis. FEEM has developed its own model.