Theory and Impact
Edited by Larry Kreiser, Soocheol Lee, Kazuhiro Ueta, Janet E. Milne and Hope Ashiabor
Chapter 15: Macroeconomic effects of environmental tax subsidy reform: an evaluation for Italy
The increasing need to protect the environment and to enhance economic activity and employment, together with the opportunity for a shift from direct to indirect taxation, suggest the implementing of fiscal measures to support economic growth by envisaging levies on polluting consumptions, ensuring the sustainability of public debt. Theoretical reasons for implementing environmental taxation reforms are well known and have been widely debated. An extensive literature has shown that fiscal instruments often constitute the most effective and efficient policies to improve the quality of the environment, by reducing externalities through the internalization of social costs and the stimulus to correct behavioral responses. At first, analyses were mainly conducted in a microeconomic and partial-equilibrium perspective, but, since the 1980s, there has been growing awareness that environmental problems cannot be analyzed without considering macroeconomic issues. Many theoretical and empirical studies have therefore dealt with the evaluation of the macroeconomic effects of environmental taxes, highlighting the existence of a possible trade-off between environmental and other economic policy targets, in particular employment and economic and social welfare, mainly due to loss of competitiveness and tax regressiveness.
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