Faced with pressure from greenhouse gas reductions and energy price hikes, the Taiwan government is in the process of developing an energy tax regime to reflect environmental external costs and effectively curb energy consumption, as well as mitigate CO(2) emissions through an adequate pricing system. This study utilizes a CGE model to simulate and analyze the economic impacts of the draft Energy Tax Bill and its complementary fiscal measures. Under the assumption of tax revenue neutrality, the use of energy tax revenue generated for the purpose of reducing income tax is the best choice with double dividend effects since it will effectively stimulate domestic consumption and investment, and, consequently, mitigate the negative impacts of the distortionary tax regime. The double dividend effect is less significant, however, when the supplementary measures being used are for government expenditure. Nevertheless, all supplementary measures have effectively reduced energy consumption, which means they have delivered at least the first dividend in the sense of CO(2) emissions control. It has been verified in this study that having adequate public-finance policy measures is the key to realizing the double dividend effect. (C) 2009 Elsevier Ltd. All rights reserved.
