مدل تعادل عمومی دینامیکی اعمال شده اصلاح مالیاتی زیست محیطی و سیاست های بازنشستگی

This paper is concerned with the analysis of environmental tax reforms within the framework of a dynamic computable general equilibrium model. The main policy option to be considered consists of using the revenues from CO2 taxation to partially finance the pension system. It is shown that CO2 reduction and financing the old-age pension system may be mutually compatible rather than conflicting policy objectives. Compared with other policy simulations, which also aim at lowering CO2 emissions, the “CO2-cum-pension” option shows itself to be the most favorable policy in terms of growth, demand of labor services, private investment and consumption.

The threat of a marked climate change as a consequence of anthropogenic CO2 emissions and the financial requirements of the old-age pension system in the face of an aging population are commonly perceived as two of the most dominant problems of the future. Both problems are addressed in this paper and investigated within the framework of a dynamic computable general equilibrium model. Projections of the age structure of the population show a significant increase in the ratio of older people to the total population in all industrial countries. In the United States, the percentage of the population older than 65 years was 10.5% in 1975 and is expected to reach 12.4% in 2000, with a rising trend predicted for the future (WRI, 1998). This development is even more marked in Europe. In Austria, for example, the increase was moderate in the past (from 14.9% in 1975 to 15.0% in 1995) although a strong growth in this ratio up to 25.3% is projected by the year 2030 (ÖSTAT, 1996). Since the social security system is not funded in most countries, it is argued that the shift in the age structure strongly affects the social security's impact on individual saving and consumption decisions and also on labor supply decisions (Feldstein, 1974). The “pay-as-you-go” method of financing social security is often seen as possibly leading to one of the major problems of our society in the future. This “implicit form of deficit finance” (Auerbach & Kotlikoff, 1987, p. 145) not only redistributes wealth from current younger towards current older generations with adverse effects on saving and capital accumulation, but because of the changing age structure of the population, it also requires either a marked increase of the social security tax rate or a benefit cut or both. A second threat of major concern is the increase of the CO2 concentration in the atmosphere. It has steadily increased from a pre-industrial level of 280 parts per million by volume (ppmv) to a level of above 363 ppmv today. Yearly, world fossil CO2 emissions stemming from industrial processes amount to 24 billion metric tons of which 6 billion tons can be attributed to North America and another 6 billion tons to Europe. Austria's volume of CO2 emissions amounts to about 60 million metric tons per year. Because of CO2's greenhouse characteristics, experts fear an increase of the global mean temperature with widespread stratospheric cooling, an increase in global mean surface precipitation, reduction of sea ice, arctic winter surface warming and a rise in global sea level (OECD, 1992). While the existing literature focuses on either environmental tax reforms or on social security tax reforms, this paper brings together both policy agendas within the framework of one model. By means of an intertemporal applied general equilibrium model, policies are investigated, which aim at a lowering of CO2 emissions on the one hand and a reduction of the growth of the social security tax rates on the other hand. The framework employed is based on the overlapping generations models tradition as found first in the works of Allais (1947), Diamond (1965) and Samuelson (1958). In a computational context, the model is based on the applied overlapping cohort models as developed in Auerbach and Kotlikoff (1987), Keuschnigg and Kohler (1994) and Rutherford (1998). Based on perfect foresight, 55 overlapping cohorts choose consumption bundles and decide on saving for each period during their lifetime. Nonetheless, there are several distinguishing features with regard to existing, dynamic CGE models. These include the joint consideration of a dynamic OLG structure, many sectors, forward-looking expectations and the inclusion of a bequest motive. Special attention is given to the analysis of two energy sectors, which are a key to the assessment of CO2 emissions on the one hand, and to the modelling of a “pay-as-you-go” old-age pension system on the other hand. Three policy simulations, which aim at analyzing the impact of taxing CO2 emissions, are investigated. It is examined whether CO2 reduction and financing the social security system may be mutually compatible rather than conflicting policy objectives. The simulations differ in terms of respective usage of the emission tax revenue. In the first place, the full amount of the tax revenue is used to increase transfer payments to households. Secondly, the subsidization of wage costs by means of the tax revenue is simulated. Both simulations aim to reduce CO2 emissions to the levels stated in the Kyoto Agreement and to provide the basis upon which an integrated policy is developed while leaving the social security system unaffected. The third simulation then integrates CO2 reduction and pension policy in that part of the revenues of the emission charge is employed to partially finance social security retirement benefits. While the “transfer option” is capable of reducing CO2 emissions to the desired level, it is associated with a distinctly lower demand for labor and thus with lower wages. The “labor cost option” is shown to stimulate demand for labor, which does not fall short of the labor demand given by the benchmark solution. Nonetheless, this policy also lowers (real) lifetime income, which results in lower real consumption demand and capital accumulation. These unintended impacts can be avoided by the “pension option”. The strength of this option is seen to follow from its impact on the social security tax rate. While the social security tax rate increases due to the aging of the population, its growth is mitigated when the pension option is pursued. Net labor income therefore is higher compared with the other policies, which positively affects lifetime income, consumption, saving and capital accumulation. The paper is structured as follows: Section 2 describes the model structure, and the main equations are set forth. Section 3 then shows how the social security system is implemented in the simulation model and it is indicated in which ways the pension system interacts with the rest of the economy. Section 4 describes the benchmark solution to the model. In Section 5, the policy experiments are defined. Section 6 confronts the simulation results with the benchmark solution. Starting with an outline of announcement effects, the impacts of both the transfer as well as the labor cost option are discussed. The first two policy simulations reveal shortcomings that are then taken into account in the design of an integrated “CO2 cum old-age pension” policy (pension option). This is discussed in Section 6 of the paper. Conclusions and an appendix showing the list of variables complete the paper.1

Commonly suggested CO2 tax recycling options such as utilization of the revenues for transfers or for labor cost subsidization are revealed to be associated with unintended side effects: i.e., a strong decline in labor demand and consumption demand, plus a weakening in savings. The simulations demonstrate that when pursuing the pension policy (where part of the carbon tax revenues is used for financing social security retirement benefits and the remaining portion is employed to subsidize labor costs), these adverse impacts can be avoided. The simulation of the pension policy shows two effects: First, labor demand is further stimulated, resulting in a higher demand for labor services compared with the transfer option. Second, the social security tax rate is lower than for any other option and so directly increases net labor income. Both effects work in favor of an increase of lifetime income, thus affecting consumption and saving positively. Where the growth rate of GDP and private consumption are close to the base case values, not only is it possible to meet the Kyoto Objective (as defined above), but the financing of the old-age pension system can be facilitated. In spite of a rising share of retired households as a percentage of total population, social security retirement benefits can be financed without lowering the replacement rate and even by lowering the social security tax rate compared to the base case. Furthermore, an improvement in aggregate foreign trade is shown to result from a lessening of imports of fossil fuels.