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Green Taxes: A Note on the Double Dividend and the Optimal Tax Rate

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  • Vidar Christiansen

Abstract

The simplest pedagogical tools are employed to clarify that there is a double dividend from shifting the tax policy towards green taxes only if taxes were not set optimally before the environmental concern was put on the agenda. In general a single or less than single dividend cannot be ruled out. The note revisits the result of Sandmo (1975) that the second best optimal tax on a dirty commodity can be interpreted as being composed of a fiscal and an environmental part, and shows how the latter can be derived from a simple cost-benefit trade-off.

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  • Vidar Christiansen, 1996. "Green Taxes: A Note on the Double Dividend and the Optimal Tax Rate," CESifo Working Paper Series 107, CESifo.
    • Handle: RePEc:ces:ceswps:_107
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    1. W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 21(1), pages 21-30.
    2. Anwar Shah & Bjorn Larsen, 2014. "Carbon taxes, the greenhouse effect, and developing countries," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 353-402, May.
    3. A. Lans Bovenberg & Frederick van der Ploeg, 2002. "Environmental Policy, Public Finance and the Labour Market in a Second-Best World," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 6, pages 112-153, Edward Elgar Publishing.
    4. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 157-183, August.
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