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Environmental fiscal reform would improve the environment and reduce the informal economy
Date:12/26/2013

c activity that does not pay any tax, and which is "a significant, growing proportion in terms of GDP in many developed economies," pointed out Gonzlez-Eguino. In Spain and in other countries in the south of Europe it is reckoned to have a volume equivalent to 20-25% of GDP.

In the fiscal reform being proposed by this group of experts, the income produced by "green taxes" would be used to cut the taxes on labour to the same extent, since "in this work we didn't want to get involved in the argument about what the optimum size of the public sector should be," as Gonzlez-Eguino carefully explained. With the reform we are just guaranteeing that the necessary money would be collected to maintain the existing public services but a greater burden would be placed on pollution and a lesser one on labour."

The researchers used economic models to simulate how a reform of this nature would affect the wider Spanish economy. "We used a methodology known as computable general equilibrium which allows us to take all the economic sectors into consideration and in that way to analyse policies that affect the economy structurally. What is new is that we have included the informal economy, which previously conducted studies had not taken into consideration."

The tax system would emerge strengthened

In the simulations made the researchers observed a greater benefit for the public system than they had expected. "When an environmental tax is introduced, the groups that do informal work start to pay taxes by the indirect channel of consumption. If tax on labour is reduced at the same time, a reduction in the inefficiency of the tax system and an effective cut in fiscal pressure are achieved. In other words, it produces an increase in economic activity, a cut in unemployment and a cut in the informal economy."

As regards the possibility that the proposal made by this study could become reality, Gonzlez-Eguino stressed that "this study r
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Contact: Aitziber Lasa
a.lasa@elhuyar.com
34-943-363-040
Elhuyar Fundazioa
Source:Eurekalert  

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