Green Taxes: Environment, Employment and Growth - a Computable General Equilibrium Analysis for Italy

29 Pages Posted: 16 May 2001

See all articles by Maurizio Bussolo

Maurizio Bussolo

World Bank - Chief Economist Office for Europe and Central Asia

Dino Pinelli

Fondazione Eni Enrico Mattei (FEEM), Milan

Date Written: January 2001

Abstract

In this paper we investigate the potential costs and benefits of a comprehensive green fiscal reform in Italy. Using a Computable General Equilibrium (CGE) model for the country, we simulate scenarios of progressive reduction of emissions for 13 polluting substances. It is shown that the introduction of a tax targeted to one single pollutant, decreases not only the directly targeted emissions but also those of other pollutants. Besides the green tax costs, in terms of increased distortions and forgone production and welfare, are shown to be quite low. This important result depends on the assumption of a certain degree of flexibility in the production processes that allows polluters to switch to cleaner technologies when the tax is implemented. This assumption closely reflects observed economic behaviour especially when a decade or more is the period of analysis, as in our case. Finally, when green taxes revenues are used to reduce wage taxes, in a revenue neutral fiscal swap, a positive employment double dividend emerges.

Keywords: Green taxes, double dividend, CGE models

JEL Classification: D5, H2, J3

Suggested Citation

Bussolo, Maurizio and Pinelli, Dino, Green Taxes: Environment, Employment and Growth - a Computable General Equilibrium Analysis for Italy (January 2001). FEEM Working Paper No. 4.2001. Available at SSRN: https://ssrn.com/abstract=269595 or http://dx.doi.org/10.2139/ssrn.269595

Maurizio Bussolo

World Bank - Chief Economist Office for Europe and Central Asia ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://https://blogs.worldbank.org/team/maurizio-bussolo

Dino Pinelli (Contact Author)

Fondazione Eni Enrico Mattei (FEEM), Milan ( email )

Corso Magenta 63
20123 Milan
Italy
39 02 52036944 (Phone)
39 02 52036946 (Fax)

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