A computable general equilibrium analysis of environmental tax reform in Japan with a forward-looking dynamic model

Shiro Takeda, Toshi H. Arimura

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

The Japanese government plans to reduce greenhouse gas emissions by 80% by 2050. However, it is not yet clear which policy measures the government will adopt to achieve this goal. In this regard, environmental tax reform, which is the combination of carbon regulation and the reduction of existing distortionary taxes, has attracted much attention. This paper examines the effects of an environmental tax reform in Japan. Using a dynamic computable general equilibrium (CGE) model, we analyze the quantitative impacts of an environmental tax reform and clarify which types of environmental tax reform are the most desirable. In the simulation, we introduce a carbon tax and consider the following four scenarios for the use of the carbon tax revenue: (1) a lump-sum rebate to the household, (2) a cut in income taxes, (3) a cut in corporate taxes and (4) a cut in consumption taxes. The first scenario is a pure carbon tax, and the other three scenarios are types of environmental tax reform. Our CGE simulation shows that (1) environmental tax reform tends to generate more desirable impacts than the pure carbon tax and that (2) the strong double dividend is obtained in some cases. In particular, we show that a cut in corporate taxes leads to the most desirable policy in terms of GDP and national income.

Original languageEnglish
Pages (from-to)503-521
Number of pages19
JournalSustainability Science
Volume16
Issue number2
DOIs
Publication statusPublished - 2021 Mar

Keywords

  • Carbon tax
  • Climate change
  • Computable general equilibrium
  • Double dividend
  • Environmental tax reform
  • Paris agreement
  • Tax interaction effects

ASJC Scopus subject areas

  • Global and Planetary Change
  • Health(social science)
  • Geography, Planning and Development
  • Ecology
  • Sociology and Political Science
  • Nature and Landscape Conservation
  • Management, Monitoring, Policy and Law

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