The financial crisis and fiscal consolidation in green budgets

image of The financial crisis and fiscal consolidation in green budgets

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.



Principles for fiscal consolidation

Fiscal consolidation is aimed at reducing government deficits and accumulation of debt. Government deficits can be reduced by increasing taxes, or by reducing expenditures. In times of economic distress it is important to increase taxes and perform fiscal consolidation in the most efficient manner. But what is efficient? Here we briefly discuss principles of efficient taxation including fiscal taxation, environmental taxation and so-called efficient subsidies. We describe properties of an efficient economy. Environmentally harmful subsidies are said to occur if actual prices on environmental services are lower than what they should be in the efficient economy.


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