Reducing CO2-Emissions Under Fiscal Retrenchment: A Multi-Cohort CGE-Model for Austria

The stabilization of budget deficit and budget debt ratios by fiscal retrenchment in order to fulfill the Maastricht criteria for the EMU is of central focus in most EU countries. At the same time the national policy dimension of acute environmental problems such as global warming has receded in the public eye. The environmental dimension nonetheless remains urgent, and a re-evaluation of the prospects of CO2-policy is needed against the background of fiscal retrenchment required by supranational obligations. We shall do this for the small, open, Austrian economy by constructing a dynamic multi-cohort CGE model enabling us to assess quantitatively the lifetime welfare impacts on the cohorts affected by three different options for using CO2-permit revenues. The distribution of welfare costs of (Toronto-) CO2-policy across cohorts significantly differs with use. This is explained by income, inheritance and price effects. Copyright Kluwer Academic Publishers 1999