State Capacity, Tax Reform, and Environmental Policies

The Future of ICMS Ecológico and ISS Neutro in Rio de Janeiro

Abstract

Objective – To analyze how fiscal and tax policies, through green taxation and ecological fiscal transfers, can influence sustainable development and the implementation of local environmental policies, identifying the capacity of municipalities to promote economic incentives aligned with socio-environmental objectives.

Methodology – A documentary and bibliographic study, analyzing municipal policies, tax legislation, and academic literature on environmental taxation and green fiscal incentives, allowing for an understanding of the strategies adopted by municipalities and their environmental and institutional impacts.

Originality/Relevance – The research addresses a recent and still underexplored topic in the literature, examining the effects of tax reform on state and municipal environmental policies in Rio de Janeiro, highlighting gaps in the study of green taxation practices and their relationship with urban sustainable development.

Results – It was identified that the Brazilian tax reform affects the ISS Neutro and ICMS Ecológico programs, which promote environmental practices and enhance municipal capacity to implement more effective environmental policies, demonstrating the institutional ability of municipalities to implement economic measures that internalize environmental externalities. The tax reform promoted by Constitutional Amendment No. 132 reduces municipal autonomy by abolishing the ISS and simultaneously presents an opportunity to convert ICMS Ecológico into IBS Ecológico.

Theoretical/Methodological Contributions – The study provides an analysis of the institutional and economic impacts of tax reform on municipal environmental policies, highlighting how the simplification of consumption taxation can affect the federal arrangement and reduce the capacity of municipalities, especially peripheral ones, to implement effective environmental policies.

Social and Environmental Contributions – The research shows how changes in tax legislation can affect municipalities' capacity to promote environmental policies, directly impacting the management of sustainability incentive programs, the conservation of natural resources, and the development of local environmental practices. By identifying opportunities and risks arising from the reform, it provides support for the formulation of more effective public policies adapted to municipal realities.