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Optimizing Tax Strategies to Reduce Greenhouse Cases Without Curtailing Growth

Abstract:
Increasing federal gasoline taxes is one of the policy options available for reducing gasoline consumption and the resulting carbon dioxide (CO2) emissions that contribute to global warming. At the request of the U.S. Environmental Protection Agency (EPA), DRI/MeGraw-Hill (DRI) estimated the levels of gasoline tax that would be necessary to stabilize CO2 emissions from the light-vehicle fleet over a 20-year period, and the economic impacts of such a tax. Three options for utilizing the revenues generated are examined: a reduction of the federal budget deficit, a reduction in personal and corporate income taxes, and a reduction in the emnployer paid portion of payroll taxes. Each option would yield markedly different levels of economic performance: while the first two options would result in reductions in economic growth, the third option (a reduction in the employer-paid portion of payroll taxes) would result in relatively slight negative economic impacts in the short term and positive economic impacts in the long term.

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Energy Specializations: Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation

JEL Codes:
Q54 - Climate; Natural Disasters and Their Management; Global Warming
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Greenhouse gases, Taxes, US EPA, CO2 emission reduction

DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No4-1


Published in Volume 12, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.