An Applied Dynamic General Equilibrium Model of Environmental Tax Reforms and Pension Policy

Abstract

This paper is concerned with the analysis of environmental tax reforms within the framework of a dynamic computable general equilibrium model. The main policy option to be considered consists of using the revenues from CO2 taxation to partially finance the pension system. It is shown that CO2 reduction and financing the old-age pension system may be mutually compatible rather than conflicting policy objectives. Compared with other policy simulations, which also aim at lowering CO2 emissions, the "CO2-cum-pension" option shows itself to be the most favorable policy in terms of growth, demand of labor services, private investment and consumption.

Keywords: Computable general equilibrium, overlapping generations, dynamics, carbon abatement