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Database 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 46 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. 47 CESifo DICE Report 3/2007