Fiscal Considerations in the Design of Green Tax Reforms

• Published in: International Journal on Green Growth and Development 2016-07, Vol.2 (2), p.189
• Main Authors: Schlegelmilch, Kai, Joas, Amani
• Format: Article
• Language: English
• Subjects: Consumption; Costs; Economic growth; Economic models; Efficiency; Employment; Energy; Environmental policy; Environmental tax; Externality; Fees & charges; Fiscal policy; Government revenue; Government spending; Innovations; Job creation; Politics; Reforms; Regulation; Subsidies; Tax base; Tax reform; Taxation; Taxes
• ISSN: 2349-1892; 2393-9567

Fiscal policy is a crucial instrument that can facilitate the transition to 'green economies'. Choices regarding the source of government revenues and the recipients of government spending fundamentally influence both consumption and investment decisions by businesses and households. The rationale is that taxes change prices of products and services and therefore influence the production and consumption choices of market actors. Finance ministries have become increasingly interested in environmental taxes as an attractive option to improve their fiscal position. To this end, a conceptual framework for understanding the revenue potential of green fiscal instruments is developed. It is developed from a Finance Ministry's point of view to fully consider its interests which is mainly-apart from environmental benefits-raising fiscal revenues, achieving fiscal efficiency gains, creating jobs and economic growth, encouraging innovation. Tax exemptions and reductions, e.g., due to required compensation for equity and competitiveness reasons, impacts from inflation and behavioural responses and Interdependencies with raising other revenues, allocation of revenues, alleviating the tension between environmental and fiscal effectiveness are thus carefully analysed and considered in this article.