Efficiency and equity aspects of energy taxation

Abstract

We analyse the distributional effects of increased oil excises in Belgium by combining a
Computable General Equilibrium (CGE) model with the EUROMOD microsimulation framework
that exploits the rich detail of household-level data. The link between the CGE model and the
micro level is top-down, feeding changes in commodity prices, factor returns and employment by
sector into a non-behavioural microsimulation. The results suggest that policymakers face an
equity-efficiency trade-off driven by the choice of revenue recycling options. Distributional effects
of the environmental tax reform appear to depend strongly on changes in factor prices and welfare
payments.