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Nonseparable Utility and the Double Dividend Debate: Reconsidering the Tax-Interaction Effect

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Author Info
Jesse Schwartz ()
Robert Repetto
Abstract

The literature on the use of environmental taxes inthe presence of distortionary (labor) taxes warns thata partial-equilibrium Pigouvian tax analysis is notappropriate because increasing the price of dirtygoods can futher aggravate the prexisting distortions. This argument is most frequently made assuming thatlabor is taxed to meet a fixed revenue requirement.When a dirty good is also taxed, others argue thatthis lowers workers' real wages, causing people toreduce their labor supply below its already suboptimallevel, aggravating labor market distortions. However,most papers ignore the effect that a cleanerenvironment can have on labor supply. That is, mostpast work has assumed that the quality of theenvironment is weakly separable in the utilityfunction. We argue that a cleaner environment canincrease labor supply, at least partially offsettingany incentive for workers to decrease their laborsupply. Further, we show explicitly how relaxing theseparability assumption affects the standardresults. Copyright Kluwer Academic Publishers 2000

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File URL: http://hdl.handle.net/10.1023/A:1008314717413
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Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 15 (2000)
Issue (Month): 2 (February)
Pages: 149-157
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Handle: RePEc:kap:enreec:v:15:y:2000:i:2:p:149-157

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Related research
Keywords: double dividend; environmental taxes; non-separable externalities; tax-interaction effect;

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  1. Krupnick, Alan J. & Harrington, Winston & Ostro, Bart, 1990. "Ambient ozone and acute health effects: Evidence from daily data," Journal of Environmental Economics and Management, Elsevier, vol. 18(1), pages 1-18, January. [Downloadable!] (restricted)
  2. Thijs Zuidema & Andries Nentjes, 1997. "Health damage of air pollution: An estimate of a dose-response relationship for the Netherlands," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(3), pages 291-308, April. [Downloadable!] (restricted)
  3. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November. [Downloadable!] (restricted)
  4. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier. [Downloadable!] (restricted)
  5. Ostro, Bart, 1994. "Estimating the health effects of air pollutants : a method with an application to Jakarta," Policy Research Working Paper Series 1301, The World Bank. [Downloadable!]
  6. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September. [Downloadable!] (restricted)
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  7. Lawrence H. Goulder & Ian W. H. Parry & Dallas Burtraw, 1996. "Revenue-Raising vs. Other Approaches to Environmental Protection: The Critical Significance of Pre-Existing Tax Distortions," NBER Working Papers 5641, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Ostro, Bart D., 1983. "The effects of air pollution on work loss and morbidity," Journal of Environmental Economics and Management, Elsevier, vol. 10(4), pages 371-382, December. [Downloadable!] (restricted)
  9. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-89, September. [Downloadable!] (restricted)
  10. Portney, Paul R. & Mullahy, John, 1986. "Urban air quality and acute respiratory illness," Journal of Urban Economics, Elsevier, vol. 20(1), pages 21-38, July. [Downloadable!] (restricted)
  11. Bovenberg, A Lans & van der Ploeg, Frederick, 1992. "Environmental Policy, Public Finance and the Labour Market in a Second-best World," CEPR Discussion Papers 745, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David Meintrup & Chang Woon Nam, 2006. "Shadow Market Area for Air Pollutants," ERSA conference papers ersa06p412, European Regional Science Association. [Downloadable!]
    Other versions:
  2. Denise Van Regemorter & Inge Mayeres, 2004. "Modelling the health related benefits of environmental policies and their feedback effects, a CGE analysis for the EU countries with GEM-E3," Computing in Economics and Finance 2004 39, Society for Computational Economics. [Downloadable!]
  3. Çağatay Koç, 2007. "Environmental Quality, Medical Care Demand and Environmental Tax Interactions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 37(2), pages 431-443, June. [Downloadable!] (restricted)
  4. Jean-Christophe Caffet, 2005. "Health effects and optimal environmental taxes in welfare state countries," Cahiers de la Maison des Sciences Economiques v05049, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
  5. Inge Mayeres & Denise Van Regemorter, 2003. "Modelling the health related benefits of environmental policies - a CGE analysis for the eu countries with gem-e3," Energy, Transport and Environment Working Papers Series ete0310, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment. [Downloadable!]
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