Environmental taxation and economic effects: a computable general equilibrium analysis for Turkey

Abstract This study explores economic effects of environmental taxation using an energy–economy–environment computable general equilibrium model of the Turkish economy. The model disaggregates the Turkish economy into seven sectors and describes production within a nested CES representation. Results, which are obtained under a Business-As-Usual as well as various environmental tax scenarios, provide insight into energy–economy–environment interactions in Turkey and indicate opportunities for an ecologically and economically sustainable development of the country. Besides general policy implications, it is found that a second dividend of environmental taxation, that is economic benefits in addition to environmental improvements, is possible when imported fuels are the primary source of pollutant emissions. This result has been obtained under tax revenue recycling that assumes public consumption of tax revenues instead of the common practice of using tax revenues for reducing existing tax distortions in order to obtain a second dividend.

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