Can a Green Tax Reform Entail Employment Double Dividend in European and Non-European Countries? A Survey of the Empirical Evidence

Abstract

This paper synthesises the simulation studies concerning green tax reform (GTR) and employment double dividend (EDD) in European and non-European countries. The studies included investigate the effect of GTR on employment. We compared the simulation results between European and non-European countries to understand the impact of study region and our findings are fivefold. First, the simulation results suggest that GTR-driven EDD is observed in both European and non-European countries, but the average effect on employment in European countries (0.67%) is significantly greater than in non-European countries (0.18%). Second, optimal tax and tax revenue recycling policies in European and non-European countries for EDD are not identical. Reducing employers' social security contributions (SSC) has the potential to generate EDD in both countries. However, a reduction in value added tax has the highest average effect on employment in European countries (1.62%), which negatively affects employment in non-European countries (−0.02%). Third, a reduction in personal income tax as a tax recycling method creates a marginally average employment dividend in non-European countries (0.16%) but is counterproductive in European countries (−0.15%). Fourth, other taxes, which predominantly represent mixed taxes, exhibit the highest EDD potential in both European (1.01%) and non-European (0.46%) countries. Finally, employment dividend diminishes over time, but a weak quadratic pattern has been observed that reveals an accelerating effect on employment in the long term. These reflections should be considered before employing GTR in non-European countries in order to yield EDD.

Green Tax Reform in Australia in the Presence of Improved Environment-Induced Productivity Gain: Does It Offer Sustainable Recovery from a Post-COVID-19 Recession?

“…The primary dividend of GTR, which is reduction of CO 2 emissions, has already been reported time and again in the literature see [1,3,4,23,24]. The nexus between any kind of taxation on the use of fossil fuel, leading to a lower consumption of that and, therefore, lower emissions, is quite straightforward and undisputed.…”

“…The use of environmental taxation as a policy instrument to address the negative externalities of economic activities (e.g., pollution) has been growing over the last several decades [1]. One of the key elements of evaluating the performance of such policies, however, is analysing the costs and benefits of the tax-based approach.…”

The mitigation potential of eco-taxation on carbon emissions: income effects under downward rigid wages

“…Therefore, we need to compute the neutral reduction in the payroll tax rates that would offset the increased collection capacity of the eco-tax. This approach is the most common one for revenue recycling (Maxim and Zander, 2019). Notice that we select the level of fixed revenue in nominal terms since the government cannot foresee the endogenous change in the CPI.…”

“…Besides these price-indexing adjustments, the government may choose to use its newly found eco-tax collections to reduce the public deficit (from the augmented tax burden) or, alternatively, it may choose to preserve the initial tax burden by recycling the eco-tax collections into lower tax rates in other tax categories. The meta-studies in Maxim and Zander (2019) and Maxim (2020) summarize the scope of these environmental tax recycling policies and their degree of success in different case studies for actually enacted or for just simulated eco-tax policies.…”

Long-Term Distributional Impacts of European Cap-and-Trade Climate Policies: A CGE Multi-Regional Analysis

“…Such reform is also known as environmental tax reform (ETR) or green tax (or budget) reform (GTR). Maxim and Zander [18] analyzed the effects of substituting existing taxes by environmental taxes in European and non-European countries and found that an ETR has an average positive impact in employment for the European countries of 0.67% compared to the reference, but this number is highly dependent of the tax being substituted and varies from −0.15% for personal income tax (PIT) to 1.62% for VAT. Freire-González and Ho [19] use a CGE model to assess the effects of an ETR in Spain for three different levels of carbon taxes and four revenue recycling scenarios and discover a positive economic output in all scenarios for a tax level of €10/tCO 2 and some scenarios for a tax level of €20/tCO 2 .…”