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Regime-Dependent Environmental Tax Multipliers : Evidence from 75 Countries (English)

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 high- and 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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    Regime-Dependent Environmental Tax Multipliers : Evidence from 75 Countries

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    trade and investment; carbon tax; tax multiplier; Energy; tax revenue; value-added tax; environmental tax; policy shock; increase in energy price; personal income tax; elasticity of substitution; environmental tax reform; output gap; carbon tax rate; tax policy change; cost of carbon; real exchange rate; Research Support; real fuel price; terms of trade; environmental tax policy; change in employment; statutory tax rate; energy production technology; factor of production; wages and salary; green tax reform; tax policy shocks; fossil fuel subsidy; tax revenue increase; labor market condition; real interest rate; decline in investment; permanent tax change; degrees of freedom; equity risk premium; short-term interest rate; fuel tax rate; environmentally related taxes; relative labor demand; tax increase; tax base; Energy Sector; tax instrument; labor taxes; government spending; value chain; robustness check; cyclical adjustment; nominal wage; carbon emission; carbon intensity; Learning and Innovation Credit; aggregate demand; high capital; trade balance; production structure; real wage; energy goods; empirical analysis; macro framework; commodity export; Capital Investments; high tax; business cycle; high share; labor supply; empirical section; excise tax; transmission channel; tax-gdp ratio; present study; capital income; tax burden; cost of energy production; wholesale good; empirical literature; employment elasticity; disposable income; foreign good; historical data; regression model; macro model; steady state; economic recovery; macroeconomic implication; perfect competition; high employment; trade elasticity; simultaneous equation; data availability; fossil energy; input substitution; gasoline price; future research; theoretical model; corporate tax; public debt; carbon increase; fuel taxation; resource taxes; empirical study; high commodity; literature review; foreign economy; high elasticity; smooth consumption; macroeconomic adjustment; employment boom; capital stock; wholesale price; capital adjustment; energy input; consumption basket; relative price; high sensitivity; domestic good; price competitiveness; market power; price rise; investment declines; Market Risk; driving force; marginal return; ceteris paribus; econometric method; bond spread; liquidity constraint; carbon price; estimation method; persistent unemployment; production adjustment; adjustment cost; monetary authority; unemployed labor; model equation; solid line; proportional tax; gasoline supply; sovereign debt; climate crisis; environmental concern; global risk; environmental goal; recovery program; oil price; average elasticity; estimated elasticity; income category; income components; error-correction model; lower tax; government budget; tax shock; informal sector; aggregate consumption; multiplier effect; Estimate Taxes; estimation result; open access; development policy; Natural Resources; informal employment; household income; tax category; country variation; cross-sectional observation; research assistance; economic recession; commodity trade; study estimate; Public Spending; habit formation; energy intensity; energy intensities; labor input; marginal product; supply chain; monetary policy; carbon input; shock variable; energy output; net export; carbon reduction; high energy; economic expansion; panel data; economic model; lagged dependent; short horizon; net output; discretionary policies; discretionary policy; capital productivity; capital control; employment multiplier; alternative interpretation; phillips curve; recent studies; output loss; expenditure cut; additional revenue; policy variable; high trade; general equilibrium



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Regime-Dependent Environmental Tax Multipliers : Evidence from 75 Countries (English). Policy Research working paper,no. WPS 9640 Washington, D.C. : World Bank Group.