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The Death of the Pigovian Tax? Policy Implications from the Double-Dividend Debate

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  • Eban Goodstein
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    Abstract

    Recently, economists appear to have abandoned a central precept of environmental policy: optimal environmental taxes are equal to marginal environmental damage (MED). As a consequence of labor market distortions, optimal environmental taxes are now generally argued to typically lie below MED, and given realistic policy constraints on optimal tax reform, sometimes well below MED. This new consensus is reflected in over a dozen papers published without rebuttal in prestigious economics journals, in important survey articles, and in policy-oriented manuscripts. How was it possible that such a radical transformation of economic thinking occurred with essentially no debate in the literature?

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    Bibliographic Info

    Article provided by University of Wisconsin Press in its journal Land Economics.

    Volume (Year): 79 (2003)
    Issue (Month): 3 ()
    Pages: 402-414

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    Handle: RePEc:uwp:landec:v:79:y:2003:i:3:p:402-414

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    Web page: http://le.uwpress.org/

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    References

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    1. Don Fullerton & Gilbert Metcalf, 1997. "Environmental Controls, Scarcity Rents, and Pre-Existing Distortions," NBER Working Papers 6091, National Bureau of Economic Research, Inc.
    2. Parry, Ian & Bento, Antonio, 1999. "Revenue Recycling and the Welfare Effects of Road Pricing," Discussion Papers dp-99-45, Resources For the Future.
    3. Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Discussion Papers dp-97-18-rev, Resources For the Future.
    4. Parry, Ian & Bento, Antonio, 1999. "Tax deductions, environmental policy, and the"double dividend"hypothesis," Policy Research Working Paper Series 2119, The World Bank.
    5. Bovenberg, A.L. & Mooij, R.A. de, 1994. "Environmental levies and distortionary taxation," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152985, Tilburg University.
    6. Burtraw, Dallas & Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1998. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," Discussion Papers dp-98-22, Resources For the Future.
    7. Sarah E. West & Roberton C. Williams, 2004. "Empirical Estimates for Environmental Policy Making in a Second-Best Setting," NBER Working Papers 10330, National Bureau of Economic Research, Inc.
    8. Goulder Lawrence H., 1995. "Effects of Carbon Taxes in an Economy with Prior Tax Distortions: An Intertemporal General Equilibrium Analysis," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 271-297, November.
    9. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
    10. Goodstein, Eban, 2002. "Labor supply and the double-dividend," Ecological Economics, Elsevier, vol. 42(1-2), pages 101-106, August.
    11. William K. Jaeger, 2002. "Carbon Taxation When Climate Affects Productivity," Land Economics, University of Wisconsin Press, vol. 78(3), pages 354-367.
    12. Bovenberg, A Lans & de Mooij, Ruud A, 1997. "Environmental Levies and Distortionary Taxation: Reply," American Economic Review, American Economic Association, vol. 87(1), pages 252-53, March.
    13. Chiroleu-Assouline, Mireille & Fodha, Mouez, 2006. "Double dividend hypothesis, golden rule and welfare distribution," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 323-335, May.
    14. Parry, Ian W. H. & Williams III, Roberton C., 1999. "A second-best evaluation of eight policy instruments to reduce carbon emissions," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 347-373, August.
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    Cited by:
    1. Iain Fraser & Robert Waschik, 2010. "The Double Dividend Hypothesis in a CGE Model: Specific Factors and Variable Labour Supply," Studies in Economics 1001, Department of Economics, University of Kent.
    2. Alcott, Blake, 2008. "The sufficiency strategy: Would rich-world frugality lower environmental impact," Ecological Economics, Elsevier, vol. 64(4), pages 770-786, February.
    3. Jonas Westin, 2011. "Labor Market Effects of Road Pricing in a Population with Continuously Distributed Value of Time," ERSA conference papers ersa10p1458, European Regional Science Association.
    4. Torstein Bye & Annegrete Bruvoll, 2008. "Multiple instruments to change energy behaviour: The emperor’s new clothes?," Discussion Papers 549, Research Department of Statistics Norway.
    5. Pezzey, John C.V., 2006. "Neither the rock nor the hard place: using payment thresholds to balance the politics and the economics of emissions control," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 139892, Australian Agricultural and Resource Economics Society.

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