Abstract
The aim of the paper is to analyse distributional impacts of environmental tax reform in the Czech Republic that consists of higher energy taxation and a revenue-recycling via labour tax cuts and/or providing lump-sum social compensations. Our simulation results suggest that if the environmental taxation is not accompanied with cuts in the labour income taxation, then the regressivity of the overall tax system will decrease.
If the revenues are recycled using the labour-income tax cuts, the effect on the progressivity can be maintained and moreover, in the case of ambitious scenarios, the overall tax system progressivity may even increase. This pattern is robust to ways of households ranking.