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Environmental Policy, Tax Incidence, and the Cost of Public Funds

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  • Jenny Ligthart
  • Frederick Van Der Ploeg

Abstract

This paper studies under what conditions a ‘double dividend’ may occur in the sense that both environmental quality and employment rise. A simple static general equilibrium model is employed in which tax policy faces the dual task of internalising a negative environmental externality and raising revenue to finance public consumption. The model features a clearing labour market with both labour demand and supply and a fixed factor of production (e.g. capital). Hence, we can study tax incidence and its effect on employment, environmental quality, and the marginal cost of public funds. It is shown for the case of an upward sloping labour supply curve and less than full tax shifting by employers that a shift towards greener preferences cannot yield a double dividend, even if the fixed factor is important. However, if labour supply curve bends backwards, more environmental concern confers a double dividend. Copyright Kluwer Academic Publishers 1999

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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 13 (1999)
Issue (Month): 2 (March)
Pages: 187-207

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Handle: RePEc:kap:enreec:v:13:y:1999:i:2:p:187-207

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: cost of public funds; double dividend; environmental externalities; pollution; public abatement; optimal taxation; public goods; tax incidence;

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References

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  1. Auerbach, Alan J., 1985. "The theory of excess burden and optimal taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127 Elsevier.
  2. Charles L. Ballard & Don Fullerton, 1993. "Distortionary Taxes and the Provision of Public Goods," NBER Working Papers 3506, National Bureau of Economic Research, Inc.
  3. Terkla, David, 1984. "The efficiency value of effluent tax revenues," Journal of Environmental Economics and Management, Elsevier, vol. 11(2), pages 107-123, June.
  4. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer, vol. 2(2), pages 157-183, August.
  5. Ligthart, J.E., 1997. "Environment, imperfect markets, and public finance," Open Access publications from Tilburg University urn:nbn:nl:ui:12-381119, Tilburg University.
  6. Pearce, David W, 1991. "The Role of Carbon Taxes in Adjusting to Global Warming," Economic Journal, Royal Economic Society, vol. 101(407), pages 938-48, July.
  7. Lee, Dwight R. & Misiolek, Walter S., 1986. "Substituting pollution taxation for general taxation: Some implications for efficiency in pollutions taxation," Journal of Environmental Economics and Management, Elsevier, vol. 13(4), pages 338-347, December.
  8. Bovenberg, A Lans & van der Ploeg, Frederick, 1994. " Green Policies and Public Finance in a Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(3), pages 343-63.
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Cited by:
  1. Miguel Rodríguez & Eduardo L. Giménez, 2006. "Pigou’s Dividend versus Ramsey’s Dividend in the Double Dividend Literature," Working Papers 2006.85, Fondazione Eni Enrico Mattei.
  2. Brian Murray & Andrew Keeler & Walter Thurman, 2005. "Tax Interaction Effects, Environmental Regulation, and “Rule of Thumb” Adjustments to Social Cost," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 30(1), pages 73-92, January.
  3. Bayindir-Upmann, Thorsten & Raith, Matthias G., 2003. "Should high-tax countries pursue revenue-neutral ecological tax reforms?," European Economic Review, Elsevier, vol. 47(1), pages 41-60, February.
  4. Thorsten Bayındır-Upmann, 2004. "On the Double Dividend under Imperfect Competition," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(2), pages 169-194, June.
  5. Tobias Kronenberg, 2010. "Energy conservation, unemployment and the direction of technical change," Portuguese Economic Journal, Springer, vol. 9(1), pages 1-17, April.
  6. repec:hal:journl:halshs-00492178 is not listed on IDEAS
  7. Bas Jacobs & Ruud A. de Mooij, 2011. "Pigou Meets Mirrlees: On the Irrelevance of Tax Distortions for the Second-Best Pigouvian Tax," CESifo Working Paper Series 3342, CESifo Group Munich.

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