The results of the literature review and the secondary source material are presented and discussed separately for each tax intervention in the following subsections, followed by a separate subsection discussing the potential and challenges of the Circular Economy Taxation Framework as a whole.
Natural Raw Material Resource Tax
For a natural raw material tax to create a positive response from industrial actors or consumers, leading to more resource-efficient practices, the tax level needs to be sufficiently high regardless of where in the value chain it is applied [9, 20]. Baptist and Hepburn  recognise that the implementation of such a high tax rate could be extremely difficult in the real economy. The material tax in itself could be expected to have a moderate effect because own-price elasticity of demand is often low for materials . This suggests that it is important to understand how a wider set of policies, in addition to the tax, interact with raw material markets . Thus, the development of material taxes requires careful consideration before design and implementation. Moreover, issues related to imports and exports of raw materials may create competitiveness asymmetries and require particular attention .
The effects of a tax on natural raw material resources may differ according to the phase of the value chain in which it is applied. Demand-price elasticity as well as market dynamics and innovation potential can vary at different stages of the value chain of a material . For a single non-renewable material resource, there are three stages in the value chain in which a tax could be applied: (a) at the extraction of the raw material, (b) as input of the material at the first industrial use and (c) at the final consumption of products (embedded material content).
A raw material tax imposed at the extraction stage in a region would directly affect the international trade of the targeted commodity. The tax would bring domestic producers at a cost disadvantage compared to foreign producers, leading inevitably to the reduction of domestic extraction, to a corresponding increase in imports and potentially—depending on demand elasticity—to price increase . The increase in imports of a raw material would imply increase of production in third countries. Consequently, the tax would not have a direct effect on the extraction of the targeted material elsewhere, since the level of use in the domestic market would remain unchanged through tax-exempt imports, but the net environmental effect could possibly be negative if the extraction technologies abroad are worse than the domestic ones .
Therefore, it is important to introduce appropriate counterbalance measures to mitigate adverse environmental impacts of such shift in extraction location, for instance through the implementation of a border tax adjustment mechanism on imported resources . In addition to neutralising the effects of the tax on domestic producers, it would also protect the competitiveness of domestic industries. However, the effect on the competitiveness of the domestic industry would be much smaller if the tax is not calculated on the basis of the quantity of materials extracted or imported, but on the estimated quantity of raw materials that are extracted globally to produce products that are used in Sweden . Other measures that could potentially prevent competitiveness losses for domestic industries could be to levy the tax on materials and products used domestically in Sweden, including imported products as well as domestically produced products, but to exempt materials produced in Sweden for export .
Another option for implementing a material tax is that of a “material input” tax, which means tax levied at the resource input of manufacturing (the first time a material is used). It differs from a resource tax at the extraction stage, as a supplementary border adjustment tax is not needed because this type of tax does not distinguish between domestic and imported materials. In order for such a tax to be reasonably implemented, the main requirement would be that there is a limited number of product groups subject to this tax; otherwise its implementation would be challenging . A material input tax could, instead of encouraging substitution of the taxed material, stimulate technological innovation aimed at reducing the use of that material, for instance be “light-weighting” which would be favourable in terms of resource efficiency .
The last possible stage for introducing a raw material tax is at the final use of products. Tax on the consumption of products that include large amounts of a specific resource is possible; however, its application might prove rather challenging and its effectiveness uncertain. There could be significant problems in identifying the share of a specific material within a final product, making the taxation base uncertain . Taxation at this stage might be better thought of as a tax based on the intensity of multiple materials, possibly taking a life-cycle analysis (LCA) perspective. Andersen  argues that once reasonable estimates are available for the external costs of a product, it would be possible to internalise these in market transactions by introducing relevant environmental taxes and charges. This allows for a first theoretical approach on the application of a PEF-based (Product Environmental Footprint-based) taxation structure. The latter would be interesting to investigate further; however, the sheer amount and diversity of products and product groups would be a formidable challenge, to say the least.
Increasing material recycling is a basic principle of resource efficiency . Taxation schemes based on material input or consumption taxes would ideally target only virgin materials, and not their recycled equivalents. This could pose challenges in designing taxes for certain materials (e.g. metals, paper) as their recycling rates are already quite high . Furthermore, due to global recycling markets, recycled metals such as iron could be easily integrated into intermediate products and parts, and their detection in final products would be difficult. Ekvall et al. , on the other hand, suggest that the tax should be applied also on recycled materials, since the overall aim of such a tax would be to increase material efficiency, and therefore the reduction of material input regardless if the material is virgin or recycled. Moreover, a material tax should be levied on all types of materials in order to avoid burden shifting between materials. It could be levied even on renewable materials, as renewable resources need also to be used efficiently, because their production rate is limited .
The possibility of substitution constitutes a critical factor for the effectiveness of resource input and consumption taxes and forms a major drawback if designed to address a single material resource. Taxing a single material might result in substitution rather than overall resource efficiency . Moreover, substitutes of the taxed material may have other unpredictable environmental disadvantages, such as higher energy intensity or lower recyclability . Taxing material groups could be a better approach, but that might shift the problem to comparing the material groups themselves, for instance plastics versus metals, instead of single material groups, such as copper versus aluminium (i.e. metals).
A tax on material resource input on new production could contribute also in establishing a competitive advantage of second hand goods (reuse), since competing manufactured goods would have increased raw material costs and thus become more expensive .
Concluding, even under a trade-neutral taxation scheme, based on a material resource tax and supplemented by border adjustment countermeasures, there is still a risk of cross-material substitution effects with uncertain resource and environmental implications. However, a global multilateral extraction tax on all non-renewable and non-energy resources could be considered a viable solution, since its expected effect would lead to a global price increase of resources resulting in global demand reductions . The actual design and implementation of such a resource tax, however, would be a major challenge in the current global political environment.
Value Added Tax Reduction in Product Repair and Reuse
The analysis of the “repair/reuse tax relief” component of the proposed CE taxation framework is based on the empirical study by Almén et al. , which aimed at assessing whether there has been a change in repair activity since the implementation of the VAT reduction and RUT tax deduction in Sweden. The focus of the study was exclusively on four economic sectors, which are specifically targeted by the tax reduction legislation (i.e. shoes, bicycles, white goods and IT goods).
Out of the twenty two interviewed companies across the four different sectors, only nine noticed an increase in the number of repairs executed since the implementation of the tax changes in 2017. Of those nine companies, two were shoe repair companies, three were bicycle repair companies, zero in white goods repairs, and four were companies that performed IT goods repairs (e.g. repairing mobile phones, computers, televisions). However, the majority of the companies could not determine if the increase was caused by the tax deductions or not. In other words, a large portion of the interviewed companies were not considerably affected by the lower tax regime for repairs. A summary of findings is presented in Table 2.
The results showed that a relative majority of companies in the bicycle and IT sector could claim an increase in the number of repairs. On the other hand, most of the companies in the other two sectors, white goods and shoes, did not observe any significant changes. There are several reasons that might explain these differences between the sectors. For instance, the reason why no changes were noticed in the white goods sector might be related to the fact that “it does not depend on whether the taxes are low or not, but rather the high purchasing price of new products”, as one interviewee highlighted. The product category of white goods can be in general more expensive than shoes, bicycles and IT goods (although some high-end IT products can be equally expensive). The difference in price between repairing existing products and buying a new product is larger, which increases the willingness to repair. Thus, the number of repairs did not increase entirely due to the effect of the reduced tax, since the majority of consumers would prefer to repair than buying new in any case.
Regarding the shoe repair sector, the reason no changes were noticed may be due to a different market situation and the view of shoes as more easily replaceable, compared to other sectors. For people to actually repair their shoes, these must be of high quality and possibly expensive for making it worth the effort to repair them. The shoe market can be both expensive and cheap depending on brand and shop, just like the other sectors. However, low-quality and dispensable shoes (according to fashion trends) are usually not worth repairing compared to expensive and “classical” high-quality shoes. One interviewee particularly stressed that the main problem can be spotted in the growing “throwaway culture”. This linear behaviour seems to be embedded in the purchasing decisions of Swedish consumers, and in this regard, the implementation of the VAT reduction did not have a noticeable impact on the interviewees’ businesses. This may imply that further policies and/or initiatives might be required to address such behavioural inconsistencies that cannot be tackled just by the implementation of a reduced tax rate for repairs.
In order to address the reasons behind the observed limited effectiveness of the tax reduction in increasing repairs, it is essential to identify the barriers for repair in the current situation. Barriers that were highlighted by the interviewees in all the above sectors included (a) lack of knowledge regarding the reduction of the tax for repairs, (b) the difference in prices between repairs and buying of new products, (c) perceived and actual product quality and (d) product design, which makes it difficult to repair products and to access spare parts.
Interviewees from all sectors, except the bicycle sector, mentioned that there is a lack of knowledge regarding the existence of a tax reduction among their customers and that it is unlikely that the majority of their repair operations can be attributed to the tax reduction. On the other hand, in the bicycle sector that the tax reduction was more prominent, after an initial spike on repairs by the time of the introduction of the tax reduction, repair activities have levelled off gradually and now bicycle repairers cannot see a difference compared to the level of repairs before the VAT reduction.
It is therefore of paramount importance to communicate the tax reduction intervention better with the public and to disseminate more information about the nature and the benefits of repairs. The information should be aimed at the people who are not aware that there is a possibility to repair products at a cheaper price compared to before the VAT reduction was implemented.
Another identified barrier was the relatively low purchasing price of new products compared to the cost of repair, which deterred customers from repairing their product instead of buying a new one. In addition, the quality of products plays a significant role in the decision whether a product is worth repairing. Two of the interviewees in the bicycle sector stressed that high-quality bicycles are worth repairing compared to low-quality bicycles, which are viewed as disposable and are not worth the effort (time and money) to repair. This applies on products in all sectors. If consumers turn to buying more high-quality products, the chance that they will see worth in repairing the product increases. Therefore, by widening the price gap between a new purchase and the repair of already acquired products would increase the willingness to repair by the customer.
Moreover, the quality of the repair work is critical for the wider uptake of repair activities. The price of a new product usually includes a guarantee that the product will function according to quality specifications for a certain amount of time; otherwise the customer has the right of refund or replacement . In the case of repairs, this is not the standard practice and it could act as a deterrent for repairs even through the price would be lower compared to buying new. Therefore, another proposed solution mentioned by one of the bike repair companies was a certification among workshops. This could lead to an increase in the number of repairs since customers will know that the repair is of high quality. This is reiterated in literature, also in the case of IT goods , where a quality labelling scheme can potentially boost consumer confidence in repairs.
Finally, to facilitate easier and more cost efficient repair services, the products should be easier to disassemble and contain less diverse and hazardous materials. For instance, an interviewee in the shoe repair sector mentioned that “high quantities of plastic in the shoes make them harder to repair or not repairable at all”. Therefore, the selection of materials and product design can have significant effect on the feasibility and the cost of repair, which in turn would negate the effect of a tax reduction no matter what the level of the tax and the potential gain would be. Related to product design and the feasibility of repairs, another aspect which needs to be considered is the availability of spare parts. If consumers choose to keep their old product for a long time, repairers may not have the spare parts needed due to the discontinuation of a certain product/model in the market. This is a barrier especially relevant for IT products where the development of new products is progressing rapidly. Therefore, availability of spare parts in the market and at reasonable (affordable) price is a prerequisite for a well-functioning repair sector , which can benefit from a tax reduction.
Concluding, the implementation of a tax reduction on repairs of certain products (i.e. shoes, bicycles, white goods, IT goods) in Sweden since 2017 did not have a significant impact according to the study by Almén et al. . Some companies in the bicycle and IT goods sectors observed an increase in the number of repairs; however, the majority of the interviewees could not link the increase in repair frequency to the respective tax reduction. The implementation of the tax reduction for repairs did not have the desired effect so far. This may imply that further policies and/or initiatives are needed as the effect of the repair tax reduction alone is not expected to result in any significant changes in consumer behaviour.
Waste Hierarchy Tax
For the quantification of the effects of a waste hierarchy tax in the Swedish economy and its associated resource efficiency implications, Lokrantz  developed and applied a static, closed economy CGE model for Sweden. The quantitative nature of CGE models are appropriate tools for assessing such policies as they allow for quantifying the effects of the waste hierarchy tax on the relation between the waste and the macroeconomy. By evaluating the introduction of a tax based on the waste hierarchy principle under different scenarios—as presented in the method section of this article—the conditions in which the tax has a positive or negative impact on the Swedish economy can be analysed.
The main results of the CGE modelling are presented in Table 3, where the different scenario equilibrium solutions are shown as the percentage change from the baseline. This convention simplifies the presentation of the results and makes it easier to compare the scenarios’ results.
The simulation results for Scenario A change significantly from the baseline. The results show that introducing a waste hierarchy tax can lead to a reduction of waste landfilled and incinerated by 14.81% and 2.98%, respectively, compared to the baseline. Recycling increases by 26.14%. This suggests that the waste hierarchy tax can be an effective tool for shifting waste output to higher levels in the hierarchy. The government’s tax revenue appears to increase by 94.01% in relation to the baseline, while there is a moderate drop in the national GDP by 0.37%. In relation to previous studies, the difference between the baseline situation and the waste hierarchy tax can be understood through the ability of the tax to affect incentives and behavioural structures [51, 52].
Tietenberg  has illustrated how a policy reform aimed at reducing pollution needs to account for firm heterogeneity. Accordingly, this means that the tax should include different tax rates for different firms to be effective. This proposition is also confirmed by King et al.  who showed that environmental taxes should be targeted at specific goods/sectors to have an impact. Consequently, the same line of argument holds for the waste hierarchy tax. The waste hierarchy tax gives a clear signal of what type of waste treatment is considered unwanted through the differentiated tax rate.
Moving to Scenario B, the waste hierarchy tax is combined with a subsidy on recycling. While the scenario is similar to the pure waste hierarchy tax, there are some key differences in the simulation result that should be highlighted. Beginning with the impact of the tax subsidy on waste, the change in waste disposal and incineration from the baseline is larger than before with 34.23 and 8.61% decline, respectively. The level of recycling on the other hand rises by approximately 42.55%, which is considerably higher than in Scenario A. These results reflect those by Schwerhoff and Franks  who have demonstrated that subsidies can increase efficiency and pollution reduction in the sector that benefits from the subsidy. Therefore, the results suggest that a subsidy could be an effective method to shift waste towards recycling.
However, the results also highlight some downsides to the subsidy approach, resulting in a higher reduction of GDP with 0.89%. This result is in line with Xie and Saltzman  who showed that even if a subsidy has a positive impact on pollution, the effect on production and GDP is negative due to limited capital resources. Altogether, this implies that the costs of the subsidy, including less tax revenues, government spending and lower GDP, must be accounted for.
In Scenario C, following the suggestions of Böhringer and Rutherford , the impact of the waste hierarchy tax under a shift to more efficient technology is assessed. A shortcoming of this scenario is the fact that the theoretical framework relies on the assumption of exogenous technology. According to Böhringer and Rutherford , modelling technology as exogenous is a disadvantage when analysing technological change in relation to resource efficiency and waste. This is because the technology shift is not captured as an outcome of, for example, investment or research and development, which are important features for increasing resource efficiency . Despite this, introducing a technological change scenario in the modelling of the waste hierarchy tax can still provide valuable insight to the analysis. With the combination of the waste hierarchy tax and the technology shift, the impact of the tax is noticeably different compared to the previous scenarios. The reduction of waste disposal at 7.63% from the baseline is smaller than in Scenario A and Scenario B. Moreover, in contrast to the previous results, both incineration and recycling levels rise with 10.06 and 40.73%, respectively.
Consequently, the technological improvement offsets the positive impact of the tax framework which is in line with the findings by Böhringer and Rutherford . Following their reasoning, the results exemplify the so-called rebound effect that follows a technology shift. If the shift leads to lower production costs and prices, these changes can in turn lead to increases in demand and supply, which offsets the potential gains from technological change in resource efficiency and waste minimisation .
In summary, the results indicate that the waste hierarchy tax which accounts for the three bottom steps in the waste hierarchy has an impact on waste and would most likely induce further waste management improvements in Sweden. However, the results also highlight the fact that the impact of the tax is sensitive to its design and to the reactions in other sectors of the economy.
Based on the results of the CGE modelling of the waste hierarchy tax and insights from previous studies, a main macroeconomic concern is related to the question of the distributional effects on resources and capital that could follow the introduction of the tax: who wins and who loses due to the policy change? This question is important to consider for at least two reasons. Firstly, if the cost of the redistribution exceeds the gains, policymakers might have to abolish the policy to avoid economic and political damages . Secondly, the group that loses because of the policy might stop its implementation if they have the power to do so . In relation to the waste hierarchy tax, the losers would for example be those actors whose waste cannot be easily shifted towards higher steps in the hierarchy with lower tax rates. This implies that the tax might need to be combined with other policies to mitigate the potential negative distributional effects.
Lastly, the CGE modelling developed by Lokrantz  was subject to several limitations. To capture the effects of the waste hierarchy tax, several simplifications and assumptions were made, resulting to a “simpler” design of the model. Therefore, there is a potential for several possible future extensions. Future work could modify the model to include an international sector, with imports and exports of material resources. Additionally, it would be interesting to explore how to extend the model to capture other relevant features of the circular economy, for instance reuse of waste or extended product lifetimes.
Towards a Framework for Circular Economy Taxation
From the analysis of the different taxation interventions in the previous sections—targeting specific life-cycle stages of materials—it becomes apparent that the implementation of each one individually entails considerable challenges. Therefore, it is reasonable to bundle these interventions in a wider fiscal policy framework that counterbalances the observed weaknesses and creates stronger pull effects on purchasing decisions, enables behavioural change and facilitates a potential shift of the economy as a whole. The proposed Circular Economy Taxation Framework (Fig. 1) attempts to reconcile the diverse objectives of the different proposed taxes towards a common overarching aim, that of a circular economy transition.
The main outcomes of the potential implementation of a natural raw material tax indicate that (a) the level of the tax needs to be sufficiently high to have an impactful effect and (b) that the application needs to be horizontal to avoid materials substitution and to increase overall resource efficiency. Moreover, the implementation of the tax would result in competition risks across industrial sectors and national economies. The introduction of resource use taxes would contribute in establishing a competitive advantage of second hand goods (reuse) or services that substitute resource inputs, e.g. in the case of product-service systems . Additionally, from a dynamic efficiency perspective, the tax could make R&D investments in such resource efficient business models (also known as circular business models) more competitive and in this way could influence innovation trajectories towards more resource-efficient patterns of production and consumption .
In the “Value Added Tax Reduction in Product Repair and Reuse” section, a critical barrier identified had to do with the difference in price between repairing existing products and buying a new product. When the price of new products increases, consumer preference towards repairing existing products—instead of buying new—also increases. Therefore, the introduction of a high material input tax coupled with a “generous” tax relief for repairs would incentivise consumers to choose repairs and prolonging the life of products. Moreover, the analysis of the effect of a waste hierarchy tax showed that waste generally would be redirected towards higher waste management options in the hierarchy, resulting in more recycling and potentially higher repair and reuse of EOL products. Although the effects of reuse were not captured by the CGE modelling by Lokrantz , it is a logical conclusion that waste holders would seek to avoid waste management fees and taxes by avoiding landfilling, incineration and recycling, and choosing to repair and reuse their existing equipment—to the extent possible (when ruling out the possibility of illegal disposal). If it is not possible to reuse the entirety of the EOL equipment, there is still a potential to salvage components and spare parts, thus reducing the level of material wastage . In turn, salvaged parts could feed in repair activities, making them even more affordable to consumers by further sinking the cost of repairs. Salvaged components from EOL equipment could be sourced in lower prices than new spare parts (although this depends case by case). Moreover, in the case that spare parts are discontinued by the original manufacturer, the salvaged parts constitute a valuable source that enable the repair of a broken equipment that would have to be wasted otherwise.
Looking at all the elements of the proposed framework together, it is possible to discern a “sandwich” effect which pushes for more intense use of products over their lifetime and could more generally lead to product life extension, a prominent circular economy strategy . The high price of using virgin raw materials from one side, and the high price of wasting raw materials on the other side, would ultimately lead consumers towards choosing more and more repair and reuse options which come with lowered costs (tax relief).
The Circular Economy Taxation Framework presented in this contribution can stand alone as an economic policy intervention, and it constitutes a holistic approach including all life-cycle stages of production and consumption, in a way that each of its constituent elements could not have addressed individually. However, its effectiveness towards achieving a wider multi-level and multi-stakeholder objective, such as the transition to a circular economy, would be limited if not complemented by an array of other policy instruments . For instance, the taxation framework includes premises that affect market failures (externalities) and behavioural aspects (economic preferences) but fails to address sufficiently governance and institutional aspects. In the case of the natural raw material tax, issues concerning competitiveness between industries and national economies came up which could undermine the effectives of the tax if no counterbalance measures are taken. In the case of the repair tax relief, the empirical evidence showed a lack of public information that hampered its effectiveness. Moreover, the current production practices undermined the effectiveness of the tax since the difficulty of repairs and unavailability of spare parts were contributing factors to increased costs of repairs despite the tax relief.
The Circular Economy Taxation Framework could also be a useful add-on to existing CE policy frameworks, for steering consumer and firms preferences and internalising external costs. For instance, Milios  developed a comprehensive policy framework for material resource efficiency in the EU, which was lacking major fiscal components (Fig. 2). The Circular Economy Taxation Framework complements the Milios  framework, by adding the necessary economic elements in the policy mix, while the Circular Economy Taxation Framework benefits from the proposed policy instruments in several ways. The Ecodesign Directive (2009/125/EC) can regulate the durability, disassembly and recyclability of products as well as the availability of spare parts. By making products more easily repairable, the cost of repair would fall respectively and adding the tax relief on repairs, it would make it a more attractive and economical option. Moreover, a quality label for reused equipment would boost the confidence of consumers to trust the repair and remanufacturing processes, and coupled with the tax relief on repairs, it would increase their willingness to purchase reused goods. Finally, the proposed target for reuse (Fig. 2) could be facilitated by the waste hierarchy tax which does not assign any additional cost to the “reuse” option rendering it the de facto preferential option (not considering other associated costs of sourcing, repairs and distribution).
Finally, an efficient policy mix needs to consider the socioeconomic context of its implementation, including the potentially affected actors and interest groups, for instance firms that might lose market shares or investments as well as consumers . This implies the need for certain approaches in the policy mix, which can redistribute revenues from the raised taxes back into the affected industries to provide support for implementing resource-efficient changes and innovation or develop skills training to create new job opportunities .