Apr 1, 2021 - Mar 31, 2023

Green Recovery from the COVID-19: Carbon Taxes and Fiscal Reforms

This proposed research project explores a possibility of a “green recovery” from the global pandemic. As the government leaders in many countries are building back their economies, some believe that we can even build back greener by taking bold actions in addressing the issue of climate change and global warming. Among many possible policies to combat climate change, carbon tax has been one of the popular instruments to reduce carbon emissions. Carbon tax is an attractive option for the government, particularly in a time like this, because it raises tax revenues, which can be used not only to mitigate the tax burdens but also stimulate the economy. More specifically, the carbon tax revenues can play an important role in the fiscal reforms. For example, personal income and corporate income tax rates can be reduced while the government maintains the tax revenues the same as before by using the tax revenues raised by the carbon tax. In Japan, the public is seeking a reversal of the sales tax hike as a part of the COVID-19 economic recovery. This could be possible when the government implements a carbon tax and uses its tax revenue to make up for the revenue loss from the sales tax reversal. For this reason, this project’s goal is to understand how a carbon tax could be used not only to reduce carbon emission, but also to help recover the economy from the COVID-19 with “green fiscal reforms.” We will explore various fiscal reform scenarios for Japan with the simulation model.