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2001 Documento de Trabajo #98

Environmental Taxes, Inefficient Subsidies and Income Distribution in Chile: A CGE Framework

Successful economic growth followed by Chile, based on open market and export strategy, is characterised by a high dependence on natural resources, and by polluting production and consumption patterns. There is an increasing concern about the need to make potentially significant trade-offs between economic growth and environmental improvements. Additionally, policy-makers have been reluctant to impose standards that could have regressive consequences, making the poor poorer. Using the ECOGEM-Chile model we study the direct and indirect effects of imposing green taxes in Chile for PM10, SO2 and NOx as well as taxes on gasoline. We analyse the effects over macroeconomic variables as well as sectoral, distributive and environmental variables. We also analyse eliminating distotionary subsidies that produce environmental and welfare losses. Evidence of welfare gains, besides environmental gains, and trade-off among sectors is presented that can justify tax/subsidies reforms in developing countries, replacing inefficient taxes/subsidies for more efficient ones.

Raúl O´Ryan
Sebastian Miller
Carlos J. de Miguel