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It is a process of transferring the tax burden from employment, to pollution, income and investment, resource depletion and waste we call it as an environmental tax reform. Environment tax reform explains about an important development in environmental policy and public finance reform. Environmental tax reform ‘entails a reconsideration of the present tax system. The present system is focused predominantly about taxing factors of production such as capital and labour. The main idea of ecological taxation is a shifting tax burden from capital and labour from these towards the use of natural resources and pollution. Environmental tax reform is also called green tax reform, green tax swap, environmental fiscal reform, green tax shifting, or ecological tax reform.

Government continue the operation in a revenue-neutral way. However, Environmental tax reform can be revenue negative or revenue positive, based on how much tax revenue is recycled. Environmental tax reform is normally advertised using the banner of revenue neutrality, overall tax burden on those countries is high, and additional taxation is politically unpalatable economically damaging. However, Sweden, Finland and Germany, have published a revenue-negative environmental tax reform, because of that reduced the overall tax burden on the economy.

The environmental goal conducted by most governments consists of reducing carbon emissions. Between various measures to achieve these goals, some of European countries have adopted energy tax. Such a tax discourages the use of fossil fuels that release carbon dioxide. Energy taxation is possible than Different directions. However, Finance an environmental tax reform can use resource rents, removal of environmentally harmful subsidies, taxes on resource use.


To explain the environmental tax reform available modelling studies and practical experience they used. Most of the empirical literature focused on carbon and energy taxation (Pezzey and Park, 1998). It is include of modelling studies of the economic and environmental impact of environmental tax reform. These studies try to predict the impact ETR. These studies are try to predict the impact environmental tax reform will have and not, in what would be the impact environmental tax reform has had. Some reviews of these studies exist, Majocchi (1996), Goulder (1995), Bruce et al. (1996), European Commission (1992b), European Commission (2000a,b). These studies have included, with difference degrees that environmental tax reform achieve both economic and environmental improvements.


This paper expands the investigation by synthesizing the results of 139 simulations from 56 studies on the impact of environmental tax reform on economic activity, CO2 emissions, investments, employment, and consumer prices.


In additionally, some of major issues are addressed, contained the sectoral and distributional impacts, and the practical implementation of environmental tax reform. Results are less certain in the long term.

Practical implication:-

Environmental tax revenues are used to reducing wage-price inflation is prevented, payroll taxes, small gains in employment, reductions in pollution, and marginal benefits or losses in production are likely in the short term to medium term, while increase and investments fall back.

139 simulations are coming from different 56 studies is synthesized below. These simulations conceal a variety of modelling techniques, with respect to model type (computable general equilibrium, partial equilibrium, input–output, macroeconomic, etc.) and assumptions (its national or international scope, concerning the phase-in of the tax, price adjustment mechanisms, the substitutability among factors of production, labour market conditions, recycling of income, etc.).

  1. Economic activity

An important issue is whether environmental tax reform affects the level of economic activity, measured by the gross domestic product (GDP). Aim of measuring is increase the environmental qualities argue that these come at the expense of production growth and aggregate production. According to the data analysis did ‘B.Bosquet / Ecological Economics 34(2000) 119 data points on environmental tax reform impact on economic activity levels. 61 simulations (51%) predict a gross domestic product loss, 71% predict an impact between −0.5 and +0.5% of gross domestic product. This article explains about that macroeconomic models are mostly forecast positive effects than general equilibrium models. Out of total 77 simulations are macroeconomic, 38 (49%) predict a positive impact on gross domestic product. Total of 38 general equilibrium simulations, out of 22 (58%) predict a positive impact.

  1. CO2 emissions

Using carbon emission reductions is the main indicator of environmental effectiveness environmental tax reform appears to influence the environment positively. According to the data analysis did ‘B.Bosquet’ 67 simulations on reductions of carbon emissions. Results are organized in classes of 5%. 56 simulations (84%) return reductions in emissions.

To help of these predictions, some assessments have been conducted for the effectiveness of Swedish and Norwegian carbon taxes. One report that the Norwegian carbon tax achieved to have a carbon emission reduction in 3–4% of stationary sources in the service and manufacturing sector and around 40% of total CO2 emissions in Norway, over the period 1991–1993 (Larsen and Nesbakken, 1997). In the same time the Swedish carbon tax helped to reduce carbon emissions, there is no quantitative estimate is available for this assessment (Swedish EPA, 1997).

  1. Investment

44 simulations (77%) predict a drag of environmental tax reform on investments; environmental tax reform could decrease investments because of the substitution effect go against capital, as capital is a price of energy and complement of energy increases. In additionally, in energy-intensive industries such as intermediate goods (Standaert, 1992) negative demand effects tend to be strong. In Fig. 6, 56 simulations (94%) predict rises in the consumer price index (CPI).


It can be more positive if models selected welfare instead of production indicators, and if some important variables, such as environmental quality of production and wage rigidities, were factored into simulations.

Important empirical evidence exists on the showed effect of environmental tax reform. The important findings are that reductions in carbon emissions can be significant, the marginal gains in employment and marginal gains or losses in activity may be recorded in short or long term, investments decrease and prices increase rapidly.

In particular, when environmental tax revenues are rearranging to cut distorting taxes on labor, such as environmental quality improves, SSC, small gains tend to be registered in the number of jobs and output in non-polluting sectors.

Environmental tax reform benefits would probably become clearer if the models were improved in the following ways.

First, welfare indicators such as the SSNNP, ISEW or GIP could be substituted for GDP.

Second, the image of structural unemployment, due in part to wage rigidities, is generally needed to out of the models.

Third, environmental improvements in the economy are generally overlooked by the effect of endogenous progress in the form of a positive feedback.

Fourth, models specially ignore dynamic efficiency; to reduce pollution more cheaply need to environmental taxes create incentives to invest in new technologies

Fifth, the taxes modeled so far have been relatively carbon taxes and small energy, the impact of which is predicted to be limited.

Simulation results remain uncertain and it should not have as the only guide for policy-making, for several reasons those are,

First, none of the model is capable of completely predicting the impact of an explain environmental tax reform package or reflecting all the subtleties of an economy.

Second, Most of the models of economic impact.

Third, sometimes it can be given the error margins, creating in assumptions, some of the predicted gains and losses may not be correct.