Featured Research

from universities, journals, and other organizations

Environmental fiscal reform would improve environment, reduce informal economy

Date:
December 26, 2013
Source:
Elhuyar Fundazioa
Summary:
The effect that the introduction of environmental fiscal reform would have on an economic system has been the focus of study since the 1990s. However, studies of this type have until now failed to take the informal economy into consideration. A group of researchers has addressed this subject and have concluded that environmental fiscal reform could help to cut the damage caused by the informal economy on the public system apart from the environmental benefit it would bring in its wake.

Measures to improve the environment and the efficiency of the tax system are proposed: CO2 emissions should be taxed and taxes on labour should be cut, a study suggests.
Credit: Elhuyar Fundazioa

The effect that the introduction of environmental fiscal reform would have on an economic system has been the focus of study since the 1990s. However, studies of this type have until now failed to take the informal economy into consideration; this is an activity which in the case of Spain, for example, could account for as much as 20-25% of GDP. The group of researchers of the UPV/EHU and the BC3 have addressed this subject and have concluded that environmental fiscal reform could help to cut the damage caused by the informal economy on the public system apart from the environmental benefit it would bring in its wake.

The journal Energy Economics has published the online version of the work and will shortly be issuing a print version.

As different environmental problems have been emerging, many pieces of academic work have been produced to study the possibility of incorporating environmental fiscal reform and the effect this would have on the economy. Environmental fiscal reform is one of the possible channels for addressing environmental problems and basically consists of levying taxes on the activities associated with environmental problems, like CO2 emissions, and cutting other kinds of taxes. "Environmental taxes manage to get consumers and companies to pay for the damage sustained by society as a result of pollution. What is more, they can be very effective in some cases because they can succeed in bringing about changes in our habits or behaviour and thus lower pollution," explained Mikel Gonzalez-Eguino, one of the researchers responsible for this study.

The raising of taxes by public bodies through the tax system usually finds itself undermined by the so-called informal economy, in other words, the economic activity that does not pay any tax, and which is "a significant, growing proportion in terms of GDP in many developed economies," pointed out González-Eguino. In Spain and in other countries in the south of Europe it is reckoned to have a volume equivalent to 20-25% of GDP.

In the fiscal reform being proposed by this group of experts, the income produced by "green taxes" would be used to cut the taxes on labour to the same extent, since "in this work we didn't want to get involved in the argument about what the optimum size of the public sector should be," as González-Eguino carefully explained. With the reform we are just guaranteeing that the necessary money would be collected to maintain the existing public services but a greater burden would be placed on pollution and a lesser one on labour."

The researchers used economic models to simulate how a reform of this nature would affect the wider Spanish economy. "We used a methodology known as computable general equilibrium which allows us to take all the economic sectors into consideration and in that way to analyse policies that affect the economy structurally. What is new is that we have included the informal economy, which previously conducted studies had not taken into consideration."

The tax system would emerge strengthened

In the simulations made the researchers observed a greater benefit for the public system than they had expected. "When an environmental tax is introduced, the groups that do informal work start to pay taxes by the indirect channel of consumption. If tax on labour is reduced at the same time, a reduction in the inefficiency of the tax system and an effective cut in fiscal pressure are achieved. In other words, it produces an increase in economic activity, a cut in unemployment and a cut in the informal economy."

As regards the possibility that the proposal made by this study could become reality, González-Eguino stressed that "this study reinforces the idea that environmental fiscal reform could be highly beneficial and would allow us to put figures on one of the recommendations that several international bodies have been making to us for a long time." However, he does not ignore the limitations they have come across in the course of the study: "For example, the associated rise in energy prices could be counteracted by the increase in real wages, but for inactive people, pensioners and unemployed people especially, this effect would not exist. The possible regressive effects of these reforms on the more vulnerable groups, in particular, would have to be analysed, and mechanisms that would correct these effects, should any arise, would need to be included."


Story Source:

The above story is based on materials provided by Elhuyar Fundazioa. Note: Materials may be edited for content and length.


Journal Reference:

  1. Anil Markandya, Mikel González-Eguino, Marta Escapa. From shadow to green: Linking environmental fiscal reforms and the informal economy. Energy Economics, 2013; 40: S108 DOI: 10.1016/j.eneco.2013.09.014

Cite This Page:

Elhuyar Fundazioa. "Environmental fiscal reform would improve environment, reduce informal economy." ScienceDaily. ScienceDaily, 26 December 2013. <www.sciencedaily.com/releases/2013/12/131226115231.htm>.
Elhuyar Fundazioa. (2013, December 26). Environmental fiscal reform would improve environment, reduce informal economy. ScienceDaily. Retrieved July 27, 2014 from www.sciencedaily.com/releases/2013/12/131226115231.htm
Elhuyar Fundazioa. "Environmental fiscal reform would improve environment, reduce informal economy." ScienceDaily. www.sciencedaily.com/releases/2013/12/131226115231.htm (accessed July 27, 2014).

Share This




More Earth & Climate News

Sunday, July 27, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Phoenix Thunderstorm Creates Giant Wall of Dust

Phoenix Thunderstorm Creates Giant Wall of Dust

Reuters - US Online Video (July 26, 2014) — A giant wall of dust slowly moves north over the Phoenix area after a summer monsoon thunderstorm. Mana Rabiee reports. Video provided by Reuters
Powered by NewsLook.com
Virginia Governor Tours Tornado Aftermath

Virginia Governor Tours Tornado Aftermath

AP (July 25, 2014) — Virginia Gov. Terry McAuliffe toured the Cherrystone Family Camping and RV Resort on the Chesapeake Bay today, a day after it was hit by a tornado. The storm claimed two lives and injured dozens of others. (July 25) Video provided by AP
Powered by NewsLook.com
Europe's Highest Train Turns 80 in French Pyrenees

Europe's Highest Train Turns 80 in French Pyrenees

AFP (July 25, 2014) — Europe's highest train, the little train of Artouste in the French Pyrenees, celebrates its 80th birthday. Duration: 01:05 Video provided by AFP
Powered by NewsLook.com
Goma Cheese Brings Whiff of New Hope to DRC

Goma Cheese Brings Whiff of New Hope to DRC

Reuters - Business Video Online (July 24, 2014) — The eastern region of the Democratic Republic of Congo, mainly known for conflict and instability, is an unlikely place for the production of fine cheese. But a farm in the village of Masisi, in North Kivu is slowly transforming perceptions of the area. Known simply as Goma cheese, the Congolese version of Dutch gouda has gained popularity through out the region. Ciara Sutton reports. Video provided by Reuters
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
 
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:  

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:  

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile iPhone Android Web
Follow Facebook Twitter Google+
Subscribe RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins