Ecological tax reforms and environmental benefits in Italy and Sweden

The paper calculates the implications of including monetary measurements of environmental emission changes for the welfare impacts of ecological tax reforms in Italy and Sweden. Taxes on emissions of SO₂, NO_x and CO₂ are investigated. Country-specific computable equilibrium models are used for estimating net welfare changes of the introduction of these taxes, the incomes of which are used for reducing distorting labour taxes. The results indicate that the inclusion of environmental benefits reduces the costs of ecological tax reforms considerably for both countries, and may even turn into net welfare gains.