Optimal fiscal policy with environmental tax and pollution abatement spending in a model with utility-enhancing environmental quality: lessons from Bulgaria |
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Authors: | Aleksandar Vasilev |
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Institution: | Department of Economics, International Business School, University of Lincoln, UK |
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Abstract: | This paper characterized optimal fiscal policy in the presence of pollution, and evaluated it relative to the observed one in Bulgaria. To this end, a dynamic general-equilibrium model is calibrated to Bulgarian data. The main findings are: (i) The optimal steady-state income tax rate is zero; (ii) the benevolent Ramsey planner provides 20% higher utility-enhancing environmental quality; (iii) the optimal level of carbon taxes is almost three times higher, and the optimal level of abatement spending is six times higher; (iv) the optimal steady-state consumption tax is twice lower. |
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Keywords: | Ramsey policy pollution environmental quality environmental tax |
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