Volume 93, June 2016, Pages 110–118
Highlights
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- In a general-equilibrium model, we simulate the effects of a carbon tax in Portugal.
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- A carbon tax is needed for Portugal to meet its 2030 target in emissions reductions.
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- In the long run, it's possible to design a carbon tax to achieve the triple dividend.
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- The Portuguese parliament ultimately approved an unsatisfactory carbon-tax package.
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- Carbon-tax revenues must be recycled into lower taxes and promote energy efficiency.
Abstract
In
2014, the Portuguese government appointed a Commission for
Environmental Tax Reform that formulated a carbon-tax proposal designed
to achieve three dividends: to help Portugal meet the European Union's
target for emissions reductions by 2030, to boost long-term employment
and GDP above their pre-carbon-tax levels, and to strengthen public
finances by lowering public indebtedness. A key feature of this proposal
was a judicious set of mixed strategies to recycle all carbon-tax
revenues back into the economy. In this note, we show how the carbon tax
that the Portuguese Parliament eventually approved deviated from such
guidelines, and ultimately failed to achieve the triple dividend. We
argue that authorities need to quickly amend the existing legislation to
avoid this misguided attempt turning into a missed opportunity to
improve environmental, macroeconomic, and fiscal outcomes.
JEL classification
- D58;
- H63;
- O44
Keywords
- Carbon tax;
- Triple dividend;
- Economic growth;
- Fiscal consolidation;
- Dynamic general equilibrium;
- Portugal
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