Environmental fiscal reform in Germany: a computable general equilibrium analysis

This article reports the effects of environmental fiscal reform recently undertaken in Germany. Our assessment uses a computable general equilibrium model of Germany and the rest of the European Union (EU) calibrated to input-output data for 1995. We found that the environmental fiscal reform yielded a moderate double dividend in terms of reduced CO2 emissions and increased employment but had little impact on the gross domestic product (GDP). Even though the manufacturing industries are facing reduced ecotax rates, the trend toward deindustrialization is strengthened owing to significant induced changes in the structure of demand. The favorable employment effect vanishes, and the GDP effect turns negative if there is an initial rise in employment that triggered rising wage claims. Effects elsewhere in the EU, especially in terms of emissions, are negligible. © 2004, Springer Japan.