Environmental tax reform and producer foresight: An intertemporal computable general equilibrium analysis

This article analyzes the nonenvironmental welfare costs of an environmental tax reform using a numerical intertemporal general equilibrium model for the Norwegian economy. By exploiting existing tax wedges in the labor market and between consumption and saving, the total nonenvironmental welfare effect of the tax reform is positive. The article also analyzes how imperfect price expectations for the investors in real capital influence the total welfare costs of the tax reform. The welfare effect is the same due to exploitation of initial distortions, but the transitional dynamics are quite different in the two paths. (C) 2000 Society for Policy Modeling. Published by Elsevier Science Inc.