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International Monetary Fund. European Dept.

authorities are committed to comply with these recommendations, despite a negative short-term impact of strong fiscal adjustment on economic activity. The EU policy framework will help to enhance fiscal governance and growth prospects, which will ensure fiscal sustainability and improve the financing conditions. To this end, the state budget was revised in March 2014, containing a comprehensive set of structural consolidation measures in the recommended amount. In order to minimize the negative impact of strong fiscal consolidation, a balanced approach including measures

International Monetary Fund. European Dept.
This 2014 Article IV Consultation highlights that Croatia remains stuck in an unusually drawn out recession. In 2013, real GDP contracted for the 5th consecutive year, and stands now at less than 90 percent of the end-2008 level. Unemployment has risen to 17 percent. Domestic demand remains depressed as corporations and households focus on reducing excessive debts accumulated in the 2000s. Exports and foreign direct investment are also feeble. The outlook is for an additional contraction in 2014 of almost 1 percent. Real domestic demand would remain feeble, reflecting both weak private sector demand and fiscal consolidation.
Mr. Jiaqian Chen, Maksym Chepeliev, Mr. Daniel Garcia-Macia, Ms. Dora M Iakova, Mr. James Roaf, Ms. Anna Shabunina, Dominique van der Mensbrugghe, and Mr. Philippe Wingender

: International Monetary Fund, Publication Services P.O. Box 92780, Washington, DC 20090, U.S.A. Tel. (202) 623–7430 Fax: (202) 623–7201 E-mail: publications@imf.org www.imfbookstore.org www.elibrary.imf.org Contents Acknowledgments Executive Summary 1. Introduction 2. The EU Objectives and Policy Framework Overview of EU Policy Framework 3. Toward an Enhanced Policy Mix Introducing EU-Wide Carbon Pricing Using Revenues to Enhance Economic Efficiency and Political Acceptability Ensuring Equal Burden Sharing Across Member

Mr. Jiaqian Chen, Maksym Chepeliev, Mr. Daniel Garcia-Macia, Ms. Dora M Iakova, Mr. James Roaf, Ms. Anna Shabunina, Dominique van der Mensbrugghe, and Mr. Philippe Wingender
This paper aims to contribute to the debate on the choice of policies to reach the more ambitious 2030 emission reduction goals currently under consideration. It provides an analysis of the macroeconomic and distributional impacts of different options to scale up the mitigation effort, and proposes enhancements to the existing EU policies. A key finding is that a well-designed package, consisting of more extensive carbon pricing across EU countries and sectors, combined with cuts in distortionary taxes and targeted green investment support, would allow the EU to reach the emission goals with practically no effects on aggregate income. To enhance the social and political acceptance of climate policies, part of the revenue from carbon pricing should be used to compensate the most vulnerable households and to support the transition of workers to greener jobs. A carbon border adjustment mechanism could complement the package to avoid an increase in emissions outside the EU due to higher carbon prices in the EU (“carbon leakage”). From a risk-reward perspective, the benefits of reducing the risk of extreme life-threatening climate events and the health benefits from lower air pollution clearly outweigh the costs of mitigation policies.
Mr. Jiaqian Chen, Maksym Chepeliev, Mr. Daniel Garcia-Macia, Ms. Dora M Iakova, Mr. James Roaf, Ms. Anna Shabunina, Dominique van der Mensbrugghe, and Mr. Philippe Wingender

help with the transition. Figure 3. EU27+UK: Total GHG Emissions’ 2019 Projections and Targets (Millions of ktCO 2 e) Source: European Environment Agency. This paper provides an overview of the current EU policy framework and discusses economically efficient options to strengthen it. The recommendations are grounded in quantitative analysis using a computable general equilibrium model (Envisage) as well as a broader review of the policy literature. The paper aims to answer the following questions: What would be the macroeconomic implications of

International Monetary Fund. European Dept.