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European budget and sustainable growth

The role of a carbon tax

Series:

Alberto Majocchi

In the first part of the book an analysis is developed regarding the fiscal structure of the Monetary Union, starting by the Maastricht constraints and going through the Stability and Growth Pact to the Fiscal Compact. The main idea is that a new structure of the European budget should be promoted, with an increased size and new own resources, overcoming the limits of the current structure either on the revenue side or on the expenditure one. The main role of a renewed budget will be to provide the European public goods that are necessary to guarantee internal and external security, protection of the environment, technological innovations and all the measures that are needed to support growth and competitiveness of European production. A Stabilisation Fund should be put in place, so that the Eurozone could be able to face with adequate means a new general or asymmetric shock.

The second part is devoted to the problem of providing new own resources to the European budget. After a brief overview of the current system and its limits, the main proposal is to introduce a carbon tax that will complement the existing Emission Trading System. The new tax should be levied on the emissions of carbon dioxide generated by the use of fossil fuel, with a rate proportional to the carbon content of the fuel. This tax is a way of "getting prices right", putting a price on negative externalities produced by the combustion of fuels, which generate CO2 emissions. This proposal is politically acceptable only if the new tax will not worsen the external competitiveness of European production. This result could be achieved if a similar levy is put on the border on imports of "like" goods coming from countries where a price is not put on the use of carbon dioxide emissions through a system of border tax adjustments, compatible with WTO rules.

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