Discussion Paper

No. 2018-86 | December 17, 2018
(Submitted as Global Solutions Paper)

Abstract

Green fiscal reforms would contribute to climate change mitigation, increase the economic efficiency of national tax systems and provide additional public revenues. Some countries in Latin America have already taken first steps towards green fiscal reforms. This paper provides an overview of the major challenges for the successful implementation of such reforms and discusses how they could be overcome. The authors first discuss the role of country-specific economic and political enabling conditions that need to be in place for successful implementation for green successful reforms. Second, they emphasize the importance of comprehensive reform plans that include all relevant ministries and agencies and are well-aligned with other policy objectives, such as energy security and industrial development. Third, they highlight how appropriate sequencing and gradualism could lower implementation costs and hence increase the political feasibility of green fiscal reforms. Finally, the authors analyze the potential impacts of green fiscal reforms on the distribution of income and discuss transfer schemes that could avoid adverse outcomes for the poorest parts of the population. They use these four dimensions to illustrate why recent reform efforts in selected Latin American countries have been successful or have failed, respectively.

JEL Classification:

H23, E62, Q54, N16, Q48

Assessment

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Links

Cite As

Michael Jakob, Rafael Soria, Carlos Trinidad, Ottmar Edenhofer, Céline Bak, Daniel Bouille, Daniel Buira, Hernan Carlino, Veronica Gutman, Christian Hübner, Brigitte Knopf, André Lucena, Luan Santos, Andrew Scott, Jan Christoph Steckel, Kanako Tanaka, Adrien Vogt-Schilb , and Koichi Yamada (2018). Green fiscal reform for a just energy transition in Latin America. Economics Discussion Papers, No 2018-86, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2018-86


Comments and Questions


Anonymous - Reader comments
January 25, 2019 - 07:55

The paper is a very good conceptual conjunction of different works that cover partial topics and different point of views of the mitigation problem.


Rafael Soria - answer
January 28, 2019 - 18:59

Thanks for the good comments and attention to this research topic.


Anonymous - Reader comments
January 25, 2019 - 09:44

The article is ok, I do not have punctual observations, it is very brief considering the complex issues it deals with, sometimes the examples seems to belong to a long introductory section, instead of the core part of the writing, the end came too soon. The examples of what is ...[more]

... happening in the countries is brief, I would like to read a bit more on the very paper, but I also understand the need of keeping paper very short, (and references are there). So, perhaps it will be great to extend these very interesting discussions on a much more large working paper, but of course this is another thing.

I found the definition of fossil fuel subsidies - when prices are below international markets' (IEA OECD) - too simple for approaching the issue. I mean how can we denounce a subsidy in Venezuela/Bolivia/Ecuador if all production costs are paid and even a tax is set on the national market price. then that "subsidized price" should be increased triggering what? more proceedings for the Govs? it is polemic and I do clearly understand that this goes beyond the scope of the article. I am more keen of exploring the internalization of social/environmental costs as a framework for having a different valuation to international prices and national prices (these last are due to cheaper hydrocarbons extraction costs). If a public choice affecting natural resources is to be made I think full costs, shadow prices, etc. should be considered instead of market prices, defined at the international border of the country. All this refers to foot note # 1, that sets the boundaries of the discussion.

I liked the Key challenges' section 2 is brief but states most of what is necessary for a comprehensive (green) reform.


Anonymous - answer1
February 05, 2019 - 05:07

Thank you for this comment. We agree that it would be good to mention that failing to internalize environmental damages related to fossil fuel use also constitutes a form of a subsidy. We will therefore amend footnote 1 and say that post-tax subsidies (which include climate and health impacts as ...[more]

... well as foregone government revenue due to tax exemptions) are about ten times larger than the pre-tax subsidies considered by the price-gap approach.