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Integrating environmental taxes on local air pollutants with fiscal reform in Hungary: Simulations with a computable general equilibrium model

  • GLENN E. MORRIS (a1), TAMÁS RÉVÉSZ (a2), ERNÖ ZALAI (a3) and JÓZSEF FUCSKÓ (a4)

Abstract

This paper describes the Fiscal Environmental Integration Model (FEIM) and its use to examine the merits of introducing a set of air pollutant emission taxes and stringent abatement requirements based on best commonly available control technology. These environmental protection strategies are examined both independently and in combination. In addition, Hungary has very high VAT, employment, and income tax rates and therefore might receive more than the usual advantage from using environmental tax revenues to reduce other taxes. We therefore also examine the economic and environmental implications of different uses of the revenues generated by the air pollutant emission taxes. FEIM is a CGE model of the Hungarian economy that includes sectoral air pollution control costs functions and execution options that allow examination of the key policy choices involved. We developed and ran a baseline and seven scenarios with FEIM. The scenarios centered on introduction of environmental load fees (ELF) on emissions of SO2, NOx, and particulates and emission abatement requirements (EAR) for these pollutants.

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Funding for the research and analyses reported here was provided by the U.S. Agency for International Development under a cooperative agreement with Harvard Institute for International Development. This work was also supported by in-kind contributions from the Hungarian Ministry of Finance. We'd like to thank these institutions for their assistance. The authors benefited from comments on an earlier draft by Dr. Lawrence H. Goulder. This paper was prepared as part of a broader effort to develop analytical tools for examination of the interrelationships between fiscal and environmental policy. Contributors to this effort include Dr. Tihamér Tajthy, Dr. Péter Kaderják, Mr. András Kis and Ms. Éva Tar.

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Integrating environmental taxes on local air pollutants with fiscal reform in Hungary: Simulations with a computable general equilibrium model

  • GLENN E. MORRIS (a1), TAMÁS RÉVÉSZ (a2), ERNÖ ZALAI (a3) and JÓZSEF FUCSKÓ (a4)

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