Can transition economies implement a carbon tax and hope for a double dividend? The case of Estonia

Abstract

This article presents a simulation of the impact of the carbon tax reform on the Estonian economy using a computable general equilibrium model. Nine different scenarios have been considered. The long-term results of the proposed tax reform should not hamper the country's economic development, provided that the appropriate tax option is used. The reform has to be implemented as a package of changes in the entire tax system.

Acknowledgements

This article is a part of a research project prepared for Estonian Government. We would like to thank Tea and Sulev Nomann, Marek Lambing, Alvar Kangur and Eva Kraaf from Estonia for useful discussions and important suggestions.

Notes

¹ The annual average exchange rate of Estonian Kroon (EEK) for the ECU (which preceded the Euro) was 15.74 in 1997.