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Taxation for a Circular Economy: New Instruments, Reforms, and Architectural Changes in the Fiscal System

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  • Xavier Vence

    (ICEDE, CRETUS, Applied Economics Department, Faculty of Economics, Campus Norte, University of Santiago de Compostela, 15782 Santiago de Compostela, Spain)

  • Sugey de Jesus López Pérez

    (ICEDE (USC), Faculty of Accounting and Administration, Autonomous University of Sinaloa, 80010 Culiacán, Mexico)

Abstract

This article addresses fiscal policy as a key instrument for promoting the transition to a circular economy. It is based on the hypotheses that (1) the current tax system penalizes circular activities, which are generally labour intensive, as opposed to new product manufacturing activities, which are generally intensive in materials and energy, highly automated and robotized, and (2) that the environmental taxation implemented in recent decades is unable to introduce significant changes to stop climate change or keep the economy within planetary ecological limits. This article examines the basis of an alternative tax system and tax instruments for correcting the current linear economy bias and driving the transition to a circular economy. Proposals are developed for both structural and partial reforms of the fiscal system, focusing on tax measures that can be implemented in the medium or short term to boost a circular economy. More specifically, we suggest a complete redesign of the currently opaque and significant amount of tax expenditure to transform environmentally harmful tax benefits into environmentally friendly tax measures that are suitable for the circular economy.

Suggested Citation

  • Xavier Vence & Sugey de Jesus López Pérez, 2021. "Taxation for a Circular Economy: New Instruments, Reforms, and Architectural Changes in the Fiscal System," Sustainability, MDPI, vol. 13(8), pages 1-21, April.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:8:p:4581-:d:539762
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    3. Laura Vidal-Hernández & Diana de Yta-Castillo & Blanca Castellanos-Basto & Marco Suárez-Castro & Evelia Rivera-Arriaga, 2021. "Fiscal Economic Instruments for the Sustainable Management of Natural Resources in Coastal Marine Areas of the Yucatan Peninsula," Sustainability, MDPI, vol. 13(19), pages 1-20, October.
    4. Aqib, Muhammad & Zaman, Khalid, 2023. "Greening the Workforce: The Power of Investing in Human Capital," MPRA Paper 116263, University Library of Munich, Germany, revised 05 Feb 2023.
    5. Beata Zofia Filipiak & Dorota Wyszkowska, 2022. "Determinants of Reducing Greenhouse Gas Emissions in European Union Countries," Energies, MDPI, vol. 15(24), pages 1-24, December.
    6. Sugey de Jesús López Pérez & Xavier Vence, 2021. "When Harmful Tax Expenditure Prevails over Environmental Tax: An Assessment on the 2014 Mexican Fiscal Reform," Sustainability, MDPI, vol. 13(20), pages 1-17, October.

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