Regime-Dependent Environmental Tax Multipliers : Evidence from 75 Countries
This paper reviews the main transmission channels of an environmental tax reform shifting the tax burden from labor to carbon emission. The analysis uses a simple open-economy macro model and estimates dynamic environmental tax as well as personal income tax multiplier effects on output and emp...
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| Format: | Working Paper |
| Language: | English |
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/595141619447698449/Regime-Dependent-Environmental-Tax-Multipliers-Evidence-from-75-Countries http://hdl.handle.net/10986/35520 |
| Summary: | This paper reviews the main transmission channels of an
environmental tax reform shifting the tax burden from
labor to carbon emission. The analysis uses a simple
open-economy macro model and estimates dynamic environmental
tax as well as personal income tax multiplier
effects on output and employment for a panel of 75 highand
low-income countries from 1994 to 2018. Tax policy
changes are identified by cyclically adjusting the tax revenues.
The estimated environmental tax multiplier effects
on output range from 1 on impact to 1.8 at the peak. Personal
income tax multipliers are slightly higher, ranging
from 1.4 to 2.3. While income taxes reduce employment,
environmental taxes do not. Environmental tax multipliers
are highly regime dependent: they are close to zero or statistically
insignificant unless taxes are increased when output
contracts, fuel prices are high, the environmental tax levels
are high, or the carbon intensity of output is low. Commodity
trade-exposed countries face higher tax multipliers.
This analysis concludes that, compared with income taxes,
environmental taxes can be a less contractionary source of
revenues to support the post-COVID-19 fiscal consolidation
efforts, especially in countries that are at the beginning
of their decarbonization efforts. |
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