Tax Reform and Environmental Policy: Second Best Analysis Using a French Applied Dynamic General Equilibrium Model

This study draws upon the construction and use of a dynamic applied general equilibrium model, with perfect foresight, designed for clarifying the questions concerning taxation and the environment. The first section gives an overview of the model, focusing on an explicit introduction to the environmental dimension in the behaviour of the agents (the so-called nonseparability assumption). Consumers choose between ‘green’ products and ‘non-green’ products under the influence of an environmental deterioration index, while the final and recyclable wastes intervene directly in the determination of the optimal firm’s plans. The second section will explain the hypothesis made for the calibration model based on French data and will describe the long term and dynamic impact that fiscal shocks (changes in vat rates, modification of taxes placed on wastes) exhibit on the various macroeconomic and environmental variables. The double dividend issue is explored. keywords : environmental policy, fiscal policy, non-separability, double dividend, dynamic applied general equilibrium model, perfect foresight. ∗Université de Metz and Érasme-Mad. E-mail : [email protected] †Érasme-Mad. Adress : Érasme, Équipe de Recherche en Analyse des Systèmes et Modélisation Économique, École Centrale Paris, Grande Voie des Vignes, 92295 ChâtenayMalabry Cedex. Tél : 00.33.(0)1.41.13.14.51. Fax : 00.33.(0)1.43.50.88.34. E-mail : [email protected]