PR from Basque research:
Environmental fiscal reform would improve the environment and reduce the informal economy
The effect that the introduction of environmental fiscal reform would have on an economic system has been the focus of study since the 1990s. However, studies of this type have until now failed to take the informal economy into consideration; this is an activity which in the case of Spain, for example, could account for as much as 20-25% of GDP. The group of researchers of the UPV/EHU and the BC3 have addressed this subject and have concluded that environmental fiscal reform could help to cut the damage caused by the informal economy on the public system apart from the environmental benefit it would bring in its wake. The journal Energy Economics has published the online version of the work and will shortly be issuing a print version.
As different environmental problems have been emerging, many pieces of academic work have been produced to study the possibility of incorporating environmental fiscal reform and the effect this would have on the economy. Environmental fiscal reform is one of the possible channels for addressing environmental problems and basically consists of levying taxes on the activities associated with environmental problems, like CO2 emissions, and cutting other kinds of taxes. “Environmental taxes manage to get consumers and companies to pay for the damage sustained by society as a result of pollution. What is more, they can be very effective in some cases because they can succeed in bringing about changes in our habits or behaviour and thus lower pollution,” explained Mikel Gonzalez-Eguino, one of the researchers responsible for this study.
The raising of taxes by public bodies through the tax system usually finds itself undermined by the so-called informal economy, in other words, the economic activity that does not pay any tax, and which is “a significant, growing proportion in terms of GDP in many developed economies,” pointed out González-Eguino. In Spain and in other countries in the south of Europe it is reckoned to have a volume equivalent to 20-25% of GDP.
In the fiscal reform being proposed by this group of experts, the income produced by “green taxes” would be used to cut the taxes on labour to the same extent, since “in this work we didn’t want to get involved in the argument about what the optimum size of the public sector should be,” as González-Eguino carefully explained. With the reform we are just guaranteeing that the necessary money would be collected to maintain the existing public services but a greater burden would be placed on pollution and a lesser one on labour.”
The researchers used economic models to simulate how a reform of this nature would affect the wider Spanish economy. “We used a methodology known as computable general equilibrium which allows us to take all the economic sectors into consideration and in that way to analyse policies that affect the economy structurally. What is new is that we have included the informal economy, which previously conducted studies had not taken into consideration.”
The tax system would emerge strengthened
In the simulations made the researchers observed a greater benefit for the public system than they had expected. “When an environmental tax is introduced, the groups that do informal work start to pay taxes by the indirect channel of consumption. If tax on labour is reduced at the same time, a reduction in the inefficiency of the tax system and an effective cut in fiscal pressure are achieved. In other words, it produces an increase in economic activity, a cut in unemployment and a cut in the informal economy.”
As regards the possibility that the proposal made by this study could become reality, González-Eguino stressed that “this study reinforces the idea that environmental fiscal reform could be highly beneficial and would allow us to put figures on one of the recommendations that several international bodies have been making to us for a long time.” However, he does not ignore the limitations they have come across in the course of the study: “For example, the associated rise in energy prices could be counteracted by the increase in real wages, but for inactive people, pensioners and unemployed people especially, this effect would not exist. The possible regressive effects of these reforms on the more vulnerable groups, in particular, would have to be analysed, and mechanisms that would correct these effects, should any arise, would need to be included.”
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Markandya, A., González-Eguino, M., Escapa. 2013. (Forthcoming). From shadow to Green: linking environmental fiscal reforms and the informal economy. Energy Economics. 35.2.
http://www.sciencedirect.com/science/article/pii/S0140988313002090
From http://www.businessdictionary.com: “Green tax: a tax paid by consumers for products or services that are not environmentally friendly. Intended purpose of the green tax is to offset the negative impact resulting from the use of non-green products and services”.
This is a classic indirect tax, imposed on suppliers of “products or services that are not environmentally friendly”, but actually paid by customers through price increases made by all suppliers else they would become unprofitable and go out of business. Examples of indirect taxes include Sales Tax, Value Added Tax (in the UK and EU), UK Business Rates and Excise Duties on alcohol, tobacco and gaming, and Air Passenger Duty. The key is that the ordinary consumer effectively has no choice but to pay increased price caused by the tax while the tax is actually paid at source by the supplier.
Direct taxes – direct levies on the property, income or wealth of individuals or corporates – are the opposite to this: the individual or corporation is liable for the tax by means of some governmental assessment and enforcement (leaving aside “hybrids” such as PAYE on income from employment, actually levied on employers in the UK).
It is a commonplace that indirect taxes are less liable to avoidance than direct taxes – essentially because evasion of direct taxes involves just one person (the taxpayer) rather than two (the supplier and effective taxpayer).
So what (the abstract) to this new paper is actually saying is that changing taxation emphasis from direct (income taxes) to indirect (sales and green taxes) will (a) increase governmental revenues and (b) (by lowering income tax rates) help to reduce the “black economy” – income tax evasion and fraud.
This effect has been obvious since Income Tax was first introduced during the Napoleonic Wars. Nothing new here …
TimC says: @ur momisugly December 28, 2013 at 7:07 am
No it is not new. It is a method of changing behavior or so they think.
It has really worked well on cigarettes and booze hasn’t it? However while the individual has the option of not buying and using cigarettes and booze and thereby avoiding the tax, they do not have any way of avoiding a ‘Green Tax’ on the energy they need to cook and warm their home, the fuel to get to work or even the fuel used to grow and distribute food. Although at this point you can get off road diesel for your tractor that does not have a fuel tax you still pay tax on the transportation of that food to get it to market and on the transportation to get that diesel to the pump.
What they propose is a green tax but what would be imposed is a consumption tax (of energy). This is already happening to some extent as we subsidize the “green” economy. Our hydro rates go up in the name of wind turbines and solar panels but the amount of electricity use remains the same or increases, leading to greater revenue for the utility company.
Speaking of which, I was 6 days without electricity after the recent ice storm here in rural Ontario. The hydro company hasn’t trimmed the trees under the lines since I’ve lived here (going on 10 years) and it was a mammoth task to do so in a week (much of which could have been avoided with regular trimming). This leads me to observe that the hydro company can increase rates to pay for goodies but won’t invest in basic preventive maintenance. Now I’m wondering who will pay that massive bill?
Yay! Income tax cut, with revenue neutral carbon tax on petrol and electricity? What’s not to like? It’s incredibly regressive – a gigantic tax cut for me and a devastating blow to the poor who don’t currently pay any net income tax. (And yes, it’s harder to evade tax on consumption than on income.)
Oh yeah right, the poor people. I knew there was a flaw. But interesting to see the push coming from the “progressives” who seem to think they’re better than the rest of us most of the time.
Gail Combs said: “No it is not new. It is a method of changing behavior or so they think.”
Thanks: totally agreed. An added “nasty” is that indirect taxes on consumption are generally blind to the circumstances of the customer/consumer, so are much more regressive than direct taxes.
As one example, the UK charges levied on electricity suppliers to subsidise wind turbines are rapidly becoming a national scandal here – or so now says our Opposition Leader who (when he was in office as Decc Secretary in the last UK government) was responsible for getting our Climate Change Act (potentially the most costly legislation ever) passed! What a difference a day makes in politics …
Yes, that is the definition of the “informal economy,” and I have applied that in several of my posts by using specific examples such as ebay, garage sales, and craigslist. But I am asking what the definition of the term is in the paper; and furthermore, I am asking how that could possibly be applied or enforced. It is impossible to tax the local resale of items of items you own, unless all wealth, possessions, and assets were brought under the definition of “informal economy.”
Taxes (including fees, which are nothing more than and nothing less than a tax) increase the price of goods. Governments do not consider this to be bad. To be a worthwhile tax, you want as many people “paying” for them as you can muster. That means that whatever tax you impose, you want the necessities of life (things that everybody buys -like tea for instance) to reflect that tax. This is the beauty of a carbon tax. There is an endless supply of things you can drum up to tax when people grumble about any one of them.
So go ahead King Guvmnt. Tax tea. I dare you.
Zeke says:
December 27, 2013 at 5:11 pm
“R. de Haan says:
December 27, 2013 at 12:35 pm
Zeke says:
December 27, 2013 at 12:05 pm “When anyone refers to the informal economy, I believe this is a way of talking about the private wealth in a country”.
No it isn’t. It is the underground economy, the money made with illegal activities and all work.performed without paying taxes. Black money. In this case the informal economy (ending the informal economy) is used as an argument to get this legislation introduced.”
Thank you for your correction, R. deHaan, which I believe could be absolutely correct. However, the “informal economy” is not defined in anything I was able to access. This phrase may have a lot of degrees of freedom in it. For example, it could mean the economy which is based on sales on the world wide web, such as ebay. Or it may even be applied to selling eggs or milk, or having a garage sale, or buying things in second hand stores. The “informal economy” is not defined, and to my reading of the available excerpts it is regulated on this basis: “Environmental taxes manage to get consumers and companies to pay for the damage sustained by society as a result of pollution. What is more, they can be very effective in some cases because they can succeed in bringing about changes in our habits or behaviour and thus lower pollution…”
I do not see this as reflecting a restricted definition for “informal economy.” I see it as all encompassing. That is why I ventured, “I do not think it precludes the idea that this is a tax on all wealth, any assets in existence and any transaction.” If there is a definition of “informal economy” in the article, and someone can see the correct graphs or read the paper, then that would help with terms.”
Zeke, the so called informal economy is nothing more but a description of all ecomic activity that is not controlled or taxed by the Government. The scale and type of informal economic activity differs from country to country and from region to region.
I personally think they have used the argument of reducing the “informal economy” to sell their tax scheme. Nothing more, nothing less.
Governments underestimate the creativity of people to bend the rules if they make their life too complicated.
As I wrote before I think this environmental tax bill is an absolute killer tax on the economy, formal or informal and is aimed to eradicate any economic activity.
If we don’t oppose this tax scheme and the CO2 taxes we’re finished.
I regard a tax like this as a declaration of war on humanity and be better stop it in it’s track.
http://green-agenda.com
SAMURAI, please explain how young people will never see any SS and Medicaid/care money? They have their own revenue streams. Worst case benefits drop by 20% for a few years.
Status of the Social Security and Medicaid Programs
http://www.ssa.gov/oact/TRSUM/tr13summary.pdf
Medicare will have insufficient reserves to pay full benefits in 2026 and Social Security will have insufficient reserves beginning in 2033.
Where does your $125 Trillion unfunded liabilities figure come from? Godlike Productions or the conservative confusing noise machine?
When people are working, wages drive an economy and the revenue stream increases. Keynsian economics give a shot at long term economic growth but, of course, there has to be good trade, manufacturing, education, energy, farm and financial policies to sustain it. That is how our politicians lost it in the last 30 years. If the ultra rich are no longer allowed to dodge taxes and the offshore & corporate tax evasion is addressed your pocket doesn’t have to be picked, Gail. Building up an economy will produce revenue to pay it back because 20 million more people will be working, weakening it never will.
Ed, here are some examples of liberal thinking: Explain how spending all of my disposable income on medical insurance will grow an economy. I won’t be buying anything but insurance this next year with money I used to spend on say, a new washing machine. Or explain how spending lots more money on electricity will grow an economy. I won’t be buying anything but electricity to run my old washing machine and I won’t be going to the doctor to buy medicine this next year. I won’t be buying lots of things next year. And neither will the people who live on my street, and the next street, and the next. Do you think the economy grows on trees?
R De Haan says, “As I wrote before I think this environmental tax bill is an absolute killer tax on the economy, formal or informal and is aimed to eradicate any economic activity.”
I agree. They ought to be ashamed of themselves. (:
But look at this dark and devilish scheme to sell this to the young and inexperienced:
“the associated rise in energy prices could be counteracted by the increase in real wages…”
As I said, there is an item on the ballot in one of our counties to raise the min. wage to $15/hr. What would that do to small businesses, services, and production? What the devil will you have to spend your money on then?! This is predatory progressivism.
Here is the new liberal thinking: To grow an economy, you must weaken it first. You must tax and increase prices in the short term in order to improve the economy in the long term.
Just exactly how does that work? And if you have bought this load of horse manure, you must believe in Santa too.
The Supreme Court is undermining science and society: http://factsnotfantasy.blogspot.com/2013/12/the-supreme-court-is-underming-science.html
Explain how you’d not lose a lot with no or poor insurance? Pam, I never proclaimed to be in favor of higher electricity. I would like go Liberal like it was back in its’ roots, not like the oligarch hijacked liberals we have today. The right are nothing but intermediaries for their greedy oligarchs.
Mr Deregulation, Phil Gramm is a perfect example of that. Rolled Glass-Steagall and inserted CFMA in 2000. Wow, that was/is a disaster.
http://www.independent.co.uk/news/world/politics/the-real-hunger-games-how-banks-gamble-on-food-prices–and-the-poor-lose-out-7606263.html
Gotta go, tons of chores… happy new year
TimC says: @ur momisugly December 28, 2013 at 9:36 am
…An added “nasty” is that indirect taxes on consumption are generally blind to the circumstances of the customer/consumer, so are much more regressive than direct taxes….
>>>>>>>>>>>>>>>>>>
The idea of a Progressive tax and a Tax on the Rich has always been just a politician’s excuse. For income tax WAGE earners pay the big tax not the ‘idle rich’ Also as Reagan pointed out in 1975
If everyone had to fork over their entire tax burden on April 14th, there would be a revolution on April 15th. That is why taxes are taken out BEFORE we ever see our wages and why there are so many hidden taxes. I once added up the taxes I could ferret out that I paid, income. state, fed, property, sales, gasoline… It was 64.5% of my income and that didn’t include the 151 taxes on a loaf of bread!
If my health stays the same (same chonic conditions, same number of colds and infections, same doctor visits, same wellcare check ups, etc) and I get health insurance for the coming year, my choices this next year compared to what I had last year will take all of my discretionary income to fund. I will have co-pays, a higher monthly premium, and an outrageous out of pocket deductible. Kiss my spending money goodby. Every extra cent I have will now go for medical expenses. If carbon taxes get piled on, I am talking food budget cuts. And that is better than what conservatives have to offer? How?????
As a matter of fact, I will probably not buy health insurance this next year, opting for the penalty instead. My rent is going up so my spending money is needed to keep the roof over my head. There are many more just like me. The universal coverage gamble will sink the party, for a long time to come.
Zeke says: @ur momisugly December 27, 2013 at 5:11 pm
….Thank you for your correction, R. deHaan, which I believe could be absolutely correct. However, the “informal economy” is not defined in anything I was able to access. This phrase may have a lot of degrees of freedom in it. For example, it could mean the economy which is based on sales on the world wide web, such as ebay. Or it may even be applied to selling eggs or milk, or having a garage sale, or buying things in second hand stores….
>>>>>>>>>>>>>>>>
The second hand stores apply sales tax. Flea markets however mostly do not. I know this having been through several raids by the Revenuers on my favorite flea market a few years ago because someone wanted to buy the land. Most at the market did not have sales tax numbers/forms.
So all those are indeed black market although most people do not even think about it. Amazon will not deal in North Carolina because of the issue of NC sales tax.
If ANY economic activity happens including such things as the sale of used items or the barter of my chicken eggs for your veggies or my lawn mowing for your helping babysitting, the government wants their slice of the action.
Since modern civilization runs on energy (generally fossil fuel) governments have decided to tax the source of all economic activity via ENERGY.
To say “Environmental fiscal reform would improve the environment and reduce the informal economy” is an outright lie since the actual effect will be to encourage more of the informal economy such as the sale of fire wood out of the back of pick-up trucks or off people’s front lawns not to mention midnight raids on the local state and federal forests à la Greece and Germany. and wreck havoc on the environment. Only the relatively rich (us) give a darn about the environment. Most people are too concerned about where their next meal is coming from or where their next fix is coming from. (addiction affects 23.2 million Americans… one in 10 Americans over the age of 12..)
You really have to wonder if the people who write this sort of nonsense ever got out of Mommy’s basement.
The bureaus must always grow, stasis is death of career.
Power is addictive .
Democracy without informed and involved citizens rapidly becomes Kleptocracy.
Are we there yet?
The informal economy is the real economy, that which cannot be measured, controlled and looted by the parasites.
Every expansion of government degrades and constricts economic activity.
We live in interesting times, the voluntarily non-productive now seem to be certain that they can replace productive activities thro the agency of bureaucracies.
That will work out well, just like it has in every similar example our history can provide.
If the major part of the return on my labour is to be taken by force and given to nonproductive activities, what incentive do you propose to keep me labouring on?
The old; The abuse will continue until moral improves?
It would not suprise me at all if this was dreamed up by Basque separatists. If Spain implemented this hare brained plan with great dilligence, the Basques and the Catalans would be the only ones left standing after a rebellion, since they are the largest above the counter economies.
Quote “get consumers and companies to pay for the damage sustained by society as a result of pollution”.
And just how do you estimate, let alone prove “damage sustained by society”, and prove that it was “as a result of pollution” ?
How do you put a value figure on that?
otsar says: @ur momisugly December 28, 2013 at 12:11 pm
It would not suprise me at all if this was dreamed up by Basque separatists….
>>>>>>>>>>>>>>>>
That idea sort of crossed my mind when I first saw the word Basque at the head of the story. This is based on my one and only three week stay in their area. Their dislike of the French and everyone else was rather obvious.
25% real unemployment in the US – and there’s still room to debate about the environment?
amazing…
pete says: @ur momisugly December 28, 2013 at 2:29 pm
Why do you think there is such a big underground economy?
CNBC: $2 Trillion Underground Economy May Be Recovery’s Savior – The growing underground economy may be helping to prevent the real economy from sinking further, according to analysts. (Who’d a thunk!)
Some think you should double that number since it is an ‘Official’ number and probably as believable as the ‘Official’ Unemployment stats. SEE: $2 Trillion US Underground Economy Is the Free Market Striking Back?
Since the ‘Official’ GDP includes all the salaries paid to government employees (another 10% or more) you can see where the government(s) might just be panicking about all those economic transactions they are not collecting taxes on. Kind of tough when less than 1/2 the adults are producing wealth that you can get your grubby mitts on. (Baby Boomer’s forced into retirement and all that.)
This old report gives a bit of perspective:
OK, back, ran two tanks of gas through the Stihl brush cutter and dinner… Pamela says, “And that is better than what conservatives have to offer? How?????”
That’s funny and sad at the same time, Pam, because the conservatives were the ones inventing and championing the darn thing in the first place. You could be ranting about Dolecare or Newtcare. Mittcare would have been different?
That dumbass amateur SpaghettiO, I mean, wattnthe’ell made him (with 47 million Republicans breathing down his neck) try to give flying monkeys what they invented & wanted & not paying attention to properly prepare the website launch?
See…
http://www.forbes.com/sites/theapothecary/2012/02/07/the-tortuous-conservative-history-of-the-individual-mandate/
http://www.newrepublic.com/article/politics/magazine/98554/individual-mandate-affordable-care-act?page=0,0
…
THE INDIVIDUAL MANDATE was not always embraced by liberals. Indeed, the idea originated on the right. In 1989, Stuart Butler of the Heritage Foundation proposed an individual mandate as part of a plan for “assuring affordable health care for all Americans”; two years later, the economist Mark Pauly put forward the idea as part of another health care proposal. Those plans in turn formed the basis of a bill introduced in 1993 by Republican Senator John Chafee of Rhode Island and co-sponsored by then-GOP Minority Leader Bob Dole. At the time, the media often characterized the individual mandate as the conservative alternative to the Democrats’ proposed mandate on employers to pay for a share of health insurance. The Republican proposal was thought to represent a more individualistic, market-friendly approach…