Regional double dividend from environmental tax reform: an application for Italian economy

The greenhouse effect forces national Governments to design environmental tax policies for facing not only global warming but also the negative economic consequences resulting from the reduction of emissions such as a negative change of GDP. This paper aims at verifying the impact of an environmental fiscal reform able to attain both the reduction of greenhouse gas emissions and the regional double dividend. We have decided to follow the computable general equilibrium approach for modelling the multisectoral income circular flow in the case of a bi-regional economy as described by a Social Accounting Matrix we have built for this purpose. The tools of analysis we chose represent suitable and consistent instruments in order to quantify the effects of an environmental tax reform. They can in fact highlight the possible differences in responses between macro regions in terms of regional GDP changes, regional prices and regional employment rate. In fact, the extended multisectoral framework, on which the model is developed, represents economic activities, imperfect labour market and institutional sectors behaviours in each macro region. The simulations performed concern the introduction of a progressive and proportional green tax on each type of commodity according to the corresponding level of CO2 emissions. Furthermore all simulations introduce a recycling scheme of green tax revenues, whose aim is reducing both the income tax and the regional tax on activities (IRAP). The application is done on a bi-regional Social Accounting Matrix for Italy for the year 2003.