Abstract:

Although market-based environmental measures like uniform CO2 taxes reach a given standard at minimal cost, they do not prevail in real world policies. An effciency oriented environmental policy fails, as it involves a redistributen of pollution rights, resulting in a strong and generally effective opposition of the groups that forego economic rents. The present paper analyzes the tradoff between efficiency and political feasibility of several CO2 tax and reimbursement schemes, using a computable general equilibrium model of Switzerland. The simulation results indicate that a policy combining a uniform CO2 tax with differentiated labor subsidies preventing intersectoral redistribution is a better solution for the tradeoff than the presently existing tax schemes in various countries.