Environmental tax reform and double dividend evidence

The increasing attention to environmental damage and the problem of climate changes have led many studies to concentrate on environmental taxation as an incentive-based instrument of environmental policy. Focusing on the relationship among environmental, labour market policies and institutional sectors, this paper aims to investigate the economic effects of a fiscal reform designed with the intent of reducing the Greenhouse Gas (GHG) emissions, according to Kyoto Protocol. For this purpose, a Computable General Equilibrium (CGE) model is used with imperfection market for labour factor and a green tax on commodity output depending on the level of CO2 emission is introduced. Tax revenues are than completely distributed to the economy in order to reduce the income tax or to cut the regional tax on commodity value added. In this way a revenue-neutral environmental policy is tested and the double dividend and any other effect on national economy are assessed. The application will be done on a Social Accounting Matrix (SAM) for Italy for the 2003 year