Taxation and the Circular Economy: perspectives and pitfalls with a specific focus on the Italian experience.

There is a broad and long-lasting consensus regarding the relevant role of fiscal policy and the tax system for promoting environmental protection and sustainable development. More recently, specific attention is given to ‘circular taxation’, i.e. the use of taxes and other levies to reduce material consumption and the related embodied emissions. This last dimension, however, is less explored, and, to our knowledge, no in-depth investigation is available for Italy on the interconnections between environmental taxation and circular taxation. Our study focuses on three main goals. Firstly, it aims at briefly discussing the concept of Circular economy (CE) within the wider perspective of environmental sustainability, trying to highlight synergies and possible trade-offs. Secondly, the role of pricing instruments to incentivize sustainable behaviour by producers, users, and consumers is critically assessed, underlining if and how, in practice, the concept of circular taxation overlaps with that of environmental taxation. Thirdly, we focus on the Italian experience, presenting the different types of taxes/charges implemented across the product lifecycle to promote activities consistent with a circular economy. Results show how, from an environmental point of view, taxes are often unevenly applied, with the predominance of taxes on energy and transport, while less attention is given to externalities generated at the beginning and at the end of the value chain. Moreover, the Italian fiscal system heavily relies on labour taxes, thus penalizing a fully renewable and circular resource. Finally, an opaque and relevant amount of tax expenditures detrimental to the environment contributes in several cases to creating unsustainable effects that contradict the CE objectives. All in all, even if the concept of circular taxation shares many contents and targets with that of environmental taxation, we argue that its valorisation can help to address some environmental issues less considered or almost neglected (aggregate extraction, water abstraction, waste disposal, land use, etc.), preventing, or at least reducing, trade-offs and ‘problem shifting’ currently largely encountered.