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Achieving the Triple Dividend in Portugal: A Dynamic General-Equilibrium Evaluation of a Carbon Tax Indexed to Emissions Trading

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  • Alfredo Marvão Pereira

    (Department of Economics, The College of William and Mary)

  • Rui M. Pereira

    (Department of Economics, The College of William and Mary)

Abstract

Using an applied dynamic general-equilibrium model, we simulate the environmental, economic, and budgetary effects in Portugal of a new carbon tax indexed to the carbon price in the EU-ETS market. Through careful recycling of the carbon-tax revenues to finance lower personal income taxes, lower Social Security contributions, and higher investment tax credits - in particular when these changes are directed at promoting energy efficiency - we show that a carbon tax reform can yield three dividends of a long-lasting nature: a reduction in emissions, better economic performance, and a stronger budgetary position. Thus, we show that it is possible to design a politically-feasible carbon tax reform that not only boosts economic growth and strengthens fiscal consolidation, but also accommodates the legitimate needs of different stakeholders: interest groups that target environmental goals, households focused distributional issues, and businesses concerned with international competitiveness. These views were fully incorporated in a draft bill presented to the Portuguese Government in September 2014 by the Commission for Environmental Tax Reform [CRFV (2014)]. Based on these recommendations, a new indexed carbon tax was then approved by Parliament, and enacted on January 1st, 2015.

Suggested Citation

  • Alfredo Marvão Pereira & Rui M. Pereira, 2015. "Achieving the Triple Dividend in Portugal: A Dynamic General-Equilibrium Evaluation of a Carbon Tax Indexed to Emissions Trading," Working Papers 155, Department of Economics, College of William and Mary.
    • Handle: RePEc:cwm:wpaper:155
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    References listed on IDEAS

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    11. Alfredo M. Pereira & Rui M. Pereira, 2014. "Environmental Fiscal Reform and Fiscal Consolidation," Public Finance Review, , vol. 42(2), pages 222-253, March.
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    Cited by:

    1. Pereira, Alfredo M. & Pereira, Rui M. & Rodrigues, Pedro G., 2016. "A new carbon tax in Portugal: A missed opportunity to achieve the triple dividend?," Energy Policy, Elsevier, vol. 93(C), pages 110-118.
    2. de Bruin, Kelly & Yakut, Aykut Mert, 2024. "Efficiency–equity trade-off in the Irish carbon tax: A CGE investigation of mixed revenue recycling schemes," Economic Modelling, Elsevier, vol. 134(C).
    3. Concetta Castiglione & Davide Infante & Janna Smirnova, 2018. "Non-trivial Factors as Determinants of the Environmental Taxation Revenues in 27 EU Countries," Economies, MDPI, vol. 6(1), pages 1-20, January.
    4. Alfredo Marvão Pereira & Rui Marvão Pereira, 2023. "Energy Taxation Reform with an Environmental Focus in Portugal," Energies, MDPI, vol. 16(3), pages 1-23, January.
    5. Puertas, R. & Marti, L., 2021. "International ranking of climate change action: An analysis using the indicators from the Climate Change Performance Index," Renewable and Sustainable Energy Reviews, Elsevier, vol. 148(C).

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    More about this item

    Keywords

    Carbon Taxation; Economic Effects; Budgetary Effects; Three Dividends; Dynamic General- Equilibrium; Endogenous Growth; Portugal.;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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