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evaluations of the environmental tax reforms are
scarce, their indirect effects on employment are not
known exactly (OECD 2007).
ENVIRONMENTAL TAXES
Environmental taxes are designed to change behaviour and to reduce environmental externalities. They
deliver a first dividend in terms of an improved environment. At the same time environmental taxes
raise public revenues. These revenues can be used to
cut labour taxes. If we can assume that direct taxes
on labour affect employment negatively, environmental taxes can generate a “double dividend”: better environmental protection and higher employment.
In 2004 environmental taxes represented on average
about 2.5 percent of GDP in OECD countries
(OECD/European Energy Agency database on
instruments used for environmental policy). To
increase environmental tax revenues, emphasis
could be put on the industrial consumption of energy. Compared to household consumption industrial
energy consumption is in many cases taxed less, and
heavy polluters often obtain exemptions.
Whereas all OECD member countries have introduced environmental taxes to a certain degree, only
some countries have implemented more comprehensive environmental tax reforms since the beginning
of the 1990s. Denmark, Finland, Germany, the
Netherlands, Norway, Sweden and the United
Kingdom are these countries (Table). Their reforms
are aimed at increasing environmental taxes on the
one hand, and cutting labour taxes on the other. The
tax cuts have focused especially on employers’ social
security contributions and on personal income taxes.
The tax shifts undertaken have as a rule been relatively small, ranging from 0.1 percent of total tax revenues in the United Kingdom to 0.5 percent in the
Netherlands. Major shifts have taken place only in
Germany (1.8 percent of total tax revenues), Sweden
(2.4 percent) and Denmark (6 percent). As ex post
According to the European Commission there are
barriers limiting the increase of environmental tax
revenues that could be used for cutting labour taxes.
Some of the revenue is often earmarked to compensate polluters from the costs associated with the tax.
Furthermore it is assumed that environmental taxes
would harm the competitiveness of energy-intensive
industries. In addition, the assumption that there is a
long-term trend of higher oil prices is used as an
argument not to increase environmental taxes at the
same time. And finally the growing popularity of
non-fiscal instruments, such as emissions trading, has
led to the reduction in additional environmental taxation (European Commission and Eurostat 2006). In
the European Union, the implicit tax rate calculated
for energy (in euros per ton of oil equivalent) shows
that taxation has been declining on average since
Green tax reforms
Start
year
Taxes raised on
Tax cut
Magnitude
Denmark
1994
Various a)
CO 2
SO2
Personal income tax
Social security contributions
Capital income
Around 3% of GDP by 2002, or
over 6% of total tax revenue
Germany
1999
Petroleum products
Social security contributions
Around 1% of total tax revenue in
1999 and 1.8% in 2002
Netherlands
1996
CO 2
Corporation tax
Personal income tax
Social security contributions
0.3% of GDP in 1996, or around
0.5% of total tax revenues in 1999
Norway
1999
CO 2
SO2
Diesel oil
Personal income tax
0.2% of total revenue in 1999
Sweden
1990
CO 2
SO2
Various
Personal income tax
Energy taxes on agriculture
Continuous education
2.4% of total tax revenue
United Kingdom
1996
Landfill
Social security contributions
Around 0.1% of total tax revenues in 1999
2001
Energy
(for industry)
Social security contributions
0.2% of total tax revenues in 2002
for the climate change levy
a)
Gasoline, electricity, water, waste and cars.
Source: OECD (2007), p. 190.
CESifo DICE Report 3/2007
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Database
REAL IMPLICIT TAX RATIO ON ENERGY
Energy tax revenues divided by final energy consumption
Euro per ton of oil equivalent, deflated with final demand deflator
300
250
2004
1995
200
150
100
50
Poland
Greece
Czech Rep.
Belgium
Spain
Finland
Portugal
Ireland
France
Austria
Netherlands
Luxembourg
Sweden
Italy
Germany
United Kingdom
Denmark
0
Source: Eurostat (2006), Structures of the Taxation Systems in the European Union - Data 1995–2004,
Luxembourg.
1995 and especially since 1999, due to a decrease in
Italy, France, Portugal, Spain and Greece that has
offset increases in the majority of other countries
(Figure). This tendency may change, however, if the
growing prominence of the climate change debate
translates into action.
W.O.
References
Eurostat (2006), Structures of the Taxation Systems in the
European Union – Data 1995–2004, Luxembourg.
OECD (2007), Employment Outlook, Paris, 189–92.
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CESifo DICE Report 3/2007