Chapter 4: Distributional Effects of the Ecological Tax Reform in Germany: An Evaluation with a Microsimulation Model
4. Distributional eﬀects of the ecological tax reform in Germany: an evaluation with a microsimulation model Christhart Bork 1. INTRODUCTION The German Government introduced several tax reforms during the period 1998 to 2002. One of them was an income tax reform that decreased the burden for nearly every taxpayer, while abolishing some tax exemptions and deductions (for details, see Petersen and Bork, 2000). Another was an ecological tax reform, the aim of which was not only to protect the environment but also to use the revenue in order to reduce social security contributions, for example, the contributions to the old-age pension scheme. This revenue is supposed to promote employment by reducing the cost of labour. The ecological tax reform consists of an increase in tax rates on motor fuels as well on a few other types of energy use (see Kohlhaas, 2000). In the policy debate, the distributional eﬀects of the ecological tax reform are a key issue. A comprehensive analysis of environment-related distributive eﬀects should include variables such as the direct and indirect ﬁnancial impacts, eﬀects on pollution, and consequences for human health (see, for example, Johnstone and Alavalapati, 1998). In general, the direct ﬁnancial eﬀects of energy taxes are said to be income-regressive, but the degree of regressivity is weak (OECD, 2001, p. 87). As regards the ecological tax reform in Germany, several major questions are raised. What kind of distributional eﬀects will the reform result in? Who gains and who loses...
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