This paper presents a two-period overlapping-generations model in which (i) firms create environmentally harmful emissions as by-products of production, and (ii) social security tax revenue from the working young is transferred to the retired elderly as pay-as-you go social security benefits. In this framework, the paper considers a revenue-neutral reform in which the government undertakes an environmental-tax-financed social security tax cut; the environmental-tax revenue is utilized as a means of financing social security benefits. It is shown that the reform attains a double dividend - namely, improvement is demonstrated in both the nonenvironmental and the environmental utility - when (i) the economy attains a dynamically inefficient equilibrium, (ii) the share of capital (labor) is low (high), and (iii) the social security tax rate before the reform lies within a certain range.
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Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Find related papers by JEL classification: D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions