Carbon border adjustment mechanism challenges and implications: The case of Visegrád countries.

Stricter climate policies across the European Union are enhancing the phenomenon of free riding by nonacting countries, which translates into carbon leakage and loss of competitiveness. This paper investigates the trade, economic and environmental implications of the future implementation of a carbon border adjustment mechanism (CBAM) in Visegrád countries as EU member states. We exploit trade data to estimate price and income elasticities for emission-intensive trade-exposed (EITE) goods imported from non-EU trading partners to Visegrád countries. Based on these estimates, which are combined with the average carbon intensity of the EU's proposed list of EITE goods, we simulate the implications of six different configurations of restrictiveness of the CBAM imposed on imports from non-EU countries. We find that a high price elasticity and carbon intensity tend to significantly decrease import demand for EITE goods under the CBAM. Moreover, future CBAM implementation will yield a relatively small adverse impact on economic growth in Visegrád countries and a small decrease in total carbon emissions in non-EU countries.

Alternative method to measure the VAT gap in the EU: Stochastic tax frontier model approach.

In this paper, we pursue an alternative method to measure the Value Added Tax gap in the European Union using the stochastic tax frontier model. We use the Value Added Tax total tax liability as the input to estimate the optimal frontier of the Value Added Tax, as well as to predict technical inefficiency. Using the latest innovations of the stochastic frontier approach, we aim to obtain the accurate size of the Value Added Tax gap in the EU-26 countries and contrast them with extant estimates. The obtained estimates of the Value Added Tax gap using the stochastic tax frontier model are different from the estimates produced by the top-down method to calculate the Value Added Tax gap in the EU. Moreover, the stochastic tax frontier approach allows us to disentangle the Value Added Tax gap, which is time dependent, from the persistent Value Added Tax gap, which is country specific. The stochastic tax frontier model allows us to test the effect of exogenous factors on the technical inefficiency of the Value Added Tax and propose appropriate policy recommendations.