The recycled model: a circular economy story

This paper develops a simple theoretical model to explore how public subsidies for circular economy investments affect local taxation. In decentralized systems, where the implementation of environmental infrastructure often relies on municipal actors, the fiscal conse quences of investment-based incentives are not straightforward. We propose a principal–agent framework that clarifies the conditions under which subsidies lead to higher or lower taxes, both in the short and long run. The model offers a flexible tool to interpret the fiscal implications of circular economy policies in multi-level governance settings.