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ECONOMIC EFFECTS
A longer life-time for products: a win-win solution for European consumers and businesses
Elmer Rietveld
Carlos Montalvo
Ton Bastein
David Peck
ECONOMIC EFFECTS: PRACTICE
Two examples from my own household
1st Good:
on-line
replacable
part
available
2 | A longer life-time for products: a win-win solution for European consumers and businesses
2nd Bad: small
metal part
needs to be
custom made
21 October 2015
OVERVIEW OF OUR STUDY
A longer life-time for products: benefits for consumers and companies
Internal Market and Consumer Protection Committee
Key messages (economic effects)
Sectors providing services for specific product R&D, repair, maintenance,
leasing and renting are most likely to benefit from life-time extension
Manufacturing sector stand to lose (reduced demand) or to gain (increased
utility) from life-time extension, depending on their existing business model;
improved trade balance (reduced demand ex-EU products) is a gain.
All type of “economic agents” (governments, social enterprises, households
of all types etc.) show potential to benefit from life-time extension.
Households, social enterprises and SME’s the most; rebound effect
illustrates increase of utility
3 | A longer life-time for products: a win-win solution for European consumers and businesses
21 October 2015
ECONOMIC EFFECTS: THEORY
D
E
M
A
N
D
Final
Consumption
Intermediary
Consumption
Investment
Domestic
demand
Export
Walras: perfect flexibility of prices
and quantities.
Keynes: slow adjustments of
prices and quantities; demand
defines supply.
S
U
P
P
L
Y
Domestic
production
Import
Capital
Labor
4 | A longer life-time for products: a win-win solution for European consumers and businesses
Energy
Materials
INCOMES
21 October 2015
THEORY CONT’D: VALUE CHAINS AND
MULTIPLYING EFFECTS, INPUT-OUTPUT
RELATIONS
NACE sector
Products of
agriculture,
forestry and
fishing
Industrial
products
(except
construction
works)
Constructions
and
construction
works
Wholesale and Information and
retail trade;
communication
transportation
services
and storage;
accommodation
and food
services
Financial and
insurance
services
Real estate
services
Professional,
scientific and
technical
services;
administrative
and support
services
Public
Arts,
administration,
entertainment
defence,
and recreation;
education,
other services;
human health
services of
and social work household and
services
extra-territorial
organizations
and bodies
Total
Professional repair
3 433
80 681
10 225
22 699
5 587
797
5 134
4 675
7 496
1 135
141 862
Waste treatment
1 374
77 243
4 137
11 794
1 700
794
6 738
5 196
18 042
1 629
128 648
432
50 920
735
2 850
6 438
565
192
8 640
13 577
535
84 883
3 654
53 160
23 898
55 490
15 877
9 108
3 310
39 146
14 792
5 389
223 824
115
3 709
385
2 347
1 350
1 032
219
1 176
3 743
879
14 957
191 597
3 955 464
879 259
1 789 783
470 627
588 887
433 086
812 287
738 015
187 178
10 046 183
200 605
4 221 177
918 639
1 884 964
501 580
601 183
448 679
871 119
795 666
196 745
10 640 357
193 316
2 184 409
683 830
2 135 713
533 502
633 184
1 235 728
1 140 753
2 168 444
399 146
11 308 024
87
1 375
293
1 078
329
130
429
770
1 571
194
6 315
Research
Lease & renting
Household repair
All other sectors
Total
Current VA
1% increase of
VA
5 | A longer life-time for products: a win-win solution for European consumers and businesses
21 October 2015
THEORY NEEDS TRANSPARENT
MODELLING
We can do this exercise in many forms: first order only (“shock”) or taking into
account balancing effects. A simple exercise would describe the initial change
(“describing the waves caused by throwing a stone in a small pond”). A
complex exercise would use elasticities, gradual changes over time, trade
regulations, shifts in taxation etc. (“what is the change in water level after the
waves have gone”)
Example of shock: lifetime change with corresponding change in demand
(and possibly prices, wages, fixed capital formation, taxation etc.)
1–2 years
3–4 years
5-6 years
7–10 years
> 10 years
Small electrical
appliances, (e.g.
tooth-brush, toys)
mobile/smart
phone, general
clothing, coat,
shoes,
Portable devices,
personal
computers, bed
items, specific
clothing (e.g.
sports),
bicycles
Camera’s, general
kitchen ware,
lighting, powertools, vacuumcleaner, washingmachines,
curtains
Cars, TV’s, kitchen
appliances,
general furniture,
carpets, bed
Appliances
attached to house
(boiler, sunroof
etc.), kitchen and
bathroom furniture,
specific furniture
6 | A longer life-time for products: a win-win solution for European consumers and businesses
21 October 2015
PRACTICE CONT’D: LIFE-TIME EXTENSION
MATTERS TO ALL EU CITIZENS
Re-industrialise and keep up adequate educational and company
infrastructure
7 | A longer life-time for products: a win-win solution for European consumers and businesses
21 October 2015
THANK YOU,
SECTORS TO
BENEFIT,
ECONOMIC
MODELLING,
VALUE CHAINS,
EXAMPLE OF
SHOCKS FROM
LIFE-TIME
EXTENSION
FROM EXTAX TO EXIOMOD 2.0
Extrapolation of Dutch case to EU-27
Assume the same tax rate increases of the Dutch case at the EU level.
Selection of largest fiscal measures (90% covered)
Aggregation of fiscal measures into model parameters
energy tax
VAT
labour costs subsidy
Aggregation of fiscal measures into model sectors
manufacturing coke and refined petroleum products
electricity
transmission and distribution services
EM-PLUS
13 July 2015
EXTAX SCENARIO: WHICH SECTORS PAY
(IN % OF OUTPUT)
Overview ExTax industry taxes in % compared to sector output
Agriculture
Animal production; Forestry; Fishing
Mining and quarrying
Food, beverage and tobacco
Textile, wood and printed products
Coke and petroleum
Chemicals
Non-metallic minerals
Basic metals and metal products
Machinary and equipment
Electricity grey
Electricity green
Transmission and distribution
Water supply
Construction
Retail; Accomodation and food services
Transportation
Services
Public services
Waste treatment
EM-PLUS
-10%
VAT_IO
ENERGYTAX
LABOURCOSTS
-5%
0%
5%
10%
15%
20%
13 July 2015
AGGREGATED EXTAX SCENARIO
Additional ETR tax
rate
Product taxes
• Energy resources
(industry)
+ 53%
• Value added tax
(industry)
+1.2%
• Value added tax
(final consumers)
+1.4%
Labour taxes
•
Labour taxes
(industry)
Expected tax
revenues
Modelled tax revenues
609 bln euro
498 bln euro
- 609 bln euro
-638 bln euro
- 10%
Other taxes
0.02 bln euro
-8 bln euro production tax
8 bln euro income tax
Government
spending
EM-PLUS
0 bln euro
-140 bln euro
13 July 2015
SUMMARY PRELIMINARY RESULTS
In % difference compared to baseline, EU-27
CO2
Exports
Output
Household
consumption
GDP
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
EM-PLUS
13 July 2015
GDP BY REGION
GDP in % difference compared to baseline
Rest of the world United States
Japan
China
EU27
Total world
0,1%
0,0%
-0,1%
-0,2%
-0,3%
-0,4%
-0,5%
-0,6%
EM-PLUS
13 July 2015
EXPORTS
Exports by products in % difference compared to baseline, EU-27
Services
Public services
Retail; Accomodation and food services
Construction
Machinary and equipment
Water supply
Mining and quarrying
Agriculture
Electricity
Textile, wood and printed products
Waste treatment
Transmission and distribution
Food, beverage and tobacco
Basic metals and metal products
Chemicals
Transportation
Animal production; Forestry; Fishing
Non-metallic minerals
Coke and petroleum
Total EU-27
EM-PLUS
-30% -25% -20% -15% -10% -5%
0%
5%
10% 15%
13 July 2015
HOUSEHOLD SPENDING
Household consumption in % difference compared to baseline, EU-27
Services
Public services
Waste treatment
Construction
Retail; Accomodation and food services
Mining and quarrying
Agriculture
Animal production; Forestry; Fishing
Machinary and equipment
Food, beverage and tobacco
Textile, wood and printed products
Basic metals and metal products
Transportation
Chemicals
Non-metallic minerals
Water supply
Coke and petroleum
Electricity
Transmission and distribution
Total EU-27
-12% -10%
EM-PLUS
-8%
-6%
-4%
-2%
0%
2%
4%
13 July 2015
CONCLUSIONS
• Environmental tax reform leads to:
• large reduction in CO2 emissions compared to small reduction in GDP
• positive effect on labour-intensive sectors
• negative effect on energy related sectors
• positive effect on wages and hence households
• negative effect on production of green electricity
Further work:
• include unemployment, to identify the ‘double dividend’ effect
• introduce labour taxes, to estimate the expected tax revenues better
EM-PLUS
13 July 2015