The financial crisis and fiscal consolidation in green budgets

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This project adds insight into the potential contribution to fiscal consolidation from environmental tax and subsidy reforms, i.e. strengthening public budgets while at the same time improving economic efficiency and the environment. The report contributes with own calculations for potential revenues from environmental taxes and discusses the financial crisis and environmental tax policy responses in Iceland, Estonia and Ireland as case studies. The analysis has been carried out during the period July 2012 – December 2012 by Vista Analysis AS, Norway, Reykjavik University, Iceland and PRAXIS Center for Policy Studies, Estonia. The project was commissioned by the Nordic Council of Ministers.




In the years from the privatisation of Iceland’s largest banks in 2003 and leading up to the financial crisis of 2008 the banks and the financial sector in Iceland had grown enormously; at their collapse the banks’ combined balance sheet was about tenfold the GDP of Iceland. The international financial crisis and the collapse of Iceland’s banks in October 2008 therefore had an immediate and extremely severe impact on economic activity: there was a sharp contraction in output and unemployment shot up. Even though the international financial crisis had a negative impact on most countries, its consequences for Iceland were unusually harsh, in particular compared to its Nordic neighbours, although not as drastic as in the Baltic countries (see Chapter 2).


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