Fiscal considerations in the design of green tax reforms are crucial to convince finance ministries of the potential benefits of environmental fiscal reform (EFR). This GGKP working paper develops a conceptual framework that allows policymakers to estimate the revenue potential of an envisioned EFR instrument. EFR revenues fundamentally depend on the tax rate and the size and elasticity of the tax base. In practice, however, policymakers need to consider the value of exemptions and reductions, external revenue effects, inflationary and time effects, administration costs, and the costs of compensatory spending. The conceptual framework is developed with reference to relevant international country case studies, highlighting the key points.
Fiscal Considerations in the Design of Green Tax Reforms