Economic Impacts of the 1997 EU Energy Tax: Simulations with Three EU-Wide Models

Jansen, H. & Klaassen, G. (2000). Economic Impacts of the 1997 EU Energy Tax: Simulations with Three EU-Wide Models. IIASA Research Report (Reprint). IIASA, Laxenburg, Austria: RR-00-004. Reprinted from Environmental and Resource Economics, 15:179-197 [2000].

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Abstract

In March 1997 the European Commission adopted a proposal that increases existing minimum levels of taxation on mineral oils by around up 10% to 25% and introduces excises for other energy products. This paper analyses the macroeconomic impacts of the proposal. It employs three models: HERMES, GEM-E3, and E3ME. All models confirm that the proposal will have positive macroeconomic impacts when the tax revenues are used to reduce social security contributions paid by employers. For the EU as a whole, both GDP and employment are expected to be higher, and CO2 emissions are 0.9% to 1.6% lower. The positive EU-wide effects can be observed in practically all member states. The sector impacts are modest, with the energy sector expected to face the most negative impacts. Differences between model results are due to the model type (general equilibrium or macro-econometric), the EU countries covered, and the way tax exemptions were handled. Crucial assumptions to obtain the "double dividend" are the modeling of the labor market and the impacts on EU external trade. The sensitivity of the results for the use of tax revenues, tax exemptions and tax rate increases is assessed.

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