Analysis and quantification of a new fiscally neutral European tax

The present study contributes to the discussion on the new European tax or excise which would be based on taxing end consumption (taxing the products and not the production) according to how much CO2 is emitted during the production of particular commodities, irrespective of whether all or a part of this process takes place inside or outside the EU. The analysis is based on the input–output model, which provides an appropriate and unique approach for measuring the total CO2 content of the various commodities taking the entire production chain into account. The calculation by products can be the basis for the estimation of product specific CO2 taxes. The model calculations based on the input–output table for the EU-27 for the year 2011 leads to the tax rate of 40.69 euros per tonne of CO2 emissions, which could have generated fiscal revenue in the amount of 1% of EU GDP. In line with the principle of fiscal neutrality, a reduction of the labour costs by −2.03% could compensate the introduction of a CO2 tax by the amount of 40.69 euros per tonne of CO2. The cost push effects lead to change of relative prices in favour of environmentally produced goods and services.