IEW 2004

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Climate Policy, Distortionary Taxation A General
Equilibrium Analysis of the Swiss Case
Alain Bernard 1, Marc Vielle 2, Laurent Viguier
3 1 Ministère de lEquipement, des Transports et
du Logement, Paris, France 2 University of
Toulouse, France 3 HEC-Genève and Ecole
Polytechnique Fédérale de Lausanne, Suisse
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Aim of the Paper

• To assess the economic impact of the Kyoto
  Protocol for the Swiss Economy
• To determine the potential gain of efficient
  redistribution of carbon tax revenue in the Swiss
  Case
• To compare and analyze different Welfare
  indicators

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Main Characteristics of GEMINI-E3

• Applied General Equilibrium Model
• Nested CES for Production Function
• Endogenous Labor Supply and Saving
• Trade Balance are cleared
• All GHG Emissions (EMF 21)
• Database GTAP 5 (1997)

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Dimensions of GEMINI-E3
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Measure of Welfare Cost and Components
S DR - CVI Total
Welfare Gain Variation of Income
Compensative Variation of


Income
-DWL GTT Deadweight
Loss of Taxation Gains from
Terms of Trade
with GTT SEXP DPEXP - SIMP DPIMP
? SPIMP DIMP - SPEXP DEXP
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Reference Case and Emission Constraint for
Switzerland

• Reference Case (2004-2020)
• GDP growth 1.7/year
• GHG Emissions growth 0.4

Kyoto Protocol -12.2
In 2020, Target -30
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Scenario Tested

• Kyoto Protocol Implemented
• Without Trading - Without US
• In Switzerland we use 6 Redistribution Rules
• Lump sum transfer
• Decrease VAT (paid only by Households)
• Decrease Indirect Taxes (paid on all uses)
• Decrease Labor Taxes (paid by Firms)
• Decrease Labor Taxes (paid by households)
• Test the Swiss policy (GHG tax paid by
  Households are recycled through Lump sum and GHG
  tax paid by firms through Labor Tax)

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International Comparison
Surplus in to HFC in 2010
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Carbon Tax
in US per T C in 2020
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Surplus and DWL
in Millions of 1997 US in 2020
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Surplus and DWL
in Millions of 1997 US in 2020
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Surplus and DWL
in Millions of 1997 US in 2020
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Surplus, GDP and Employment
in 2020
GDP and Employment Difference in in respect
to baseline Surplus Surplus divided by
Households consumption
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Conclusion

• At an international level the welfare cost of
  the Kyoto Protocol for Switzerland is
  intermediate
• We find a gain of efficient redistribution (VAT)
• Different welfare indicators give different
  scenarios ranking