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Environmental tax reform and endogenous growth

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  • Bovenberg, A.L.
  • Mooij, R.A. de

    (Tilburg University, Center for Economic Research)

Abstract

This paper explores the effects of an environmental tax reform on pollution, economic growth and welfare in an endogenous growth model with pre-existing tax distortions. We find that a shift in the tax mix away from output towards pollution may raise economic growth through two channels. The first channel is an environmental production externality, which determines the positive effect of lower aggregate pollution on the productivity of capital. The second channel is a shift in the tax burden away from the net return on investment towards profits. The paper also shows that, if tax shifting towards profits is large and environmental amenities are unimportant, the optimal tax on pollution may exceed its Pigovian level.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1994-98.

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Date of creation: 1994
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Handle: RePEc:dgr:kubcen:199498

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Web page: http://center.uvt.nl

Related research

Keywords: Growth Models; Pollution; Tax Reform; Environmental Tax; environmental economics;

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References

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  1. Smulders, J.A. & Gradus, R.H.J.M., 1993. "Pollution abatement and long-term growth," Discussion Paper 1993-73, Tilburg University, Center for Economic Research.
  2. Anne Brendemoen & Haakon Vennemo, 1994. "A Climate Treaty and the Norwegian Economy: A CGE Assessment," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 77-93.
  3. Frederick Ploeg & Cees Withagen, 1991. "Pollution control and the Ramsey problem," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(2), pages 215-236, June.
  4. Hofkes, M.W., 1993. "Sustainability in one and two sector endogenous growth models : a note," Serie Research Memoranda 0052, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  5. 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.
  6. Berndt, Ernst R & Wood, David O, 1979. "Engineering and Econometric Interpretations of Energy-Capital Complementarity," American Economic Review, American Economic Association, vol. 69(3), pages 342-54, June.
  7. Robert J. Barro & Xavier Sala-i-Martin, 1990. "Public Finance in Models of Economic Growth," NBER Working Papers 3362, National Bureau of Economic Research, Inc.
  8. Tahvonen Olli & Kuuluvainen Jari, 1993. "Economic Growth, Pollution, and Renewable Resources," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 101-118, March.
  9. Sergio T. Rebelo, 1990. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
  10. Smulders, J.A., 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Open Access publications from Tilburg University urn:nbn:nl:ui:12-153411, Tilburg University.
  11. Bovenberg, A Lans & Smulders, Sjak A, 1996. "Transitional Impacts of Environmental Policy in an Endogenous Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 861-93, November.
  12. Butter, F.A.G. den & Hofkes, M.W., 1993. "Sustainable development with extractive and non-extractive use of the environment in production," Serie Research Memoranda 0055, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  13. Smulders, J.A. & Gradus, R.H.J.M., 1993. "The trade-off between environmental care and long-term growth: Pollution in three proto-type growth models," Open Access publications from Tilburg University urn:nbn:nl:ui:12-153405, Tilburg University.
  14. Bovenberg, A.L. & Ploeg, F. van der, 1992. "Environmental policy, public finance and the labour market in a second-best world," Discussion Paper 1992-43, Tilburg University, Center for Economic Research.
  15. S. Proost & D. Regemorter, 1995. "The double dividend and the role of inequality aversion and macroeconomic regimes," International Tax and Public Finance, Springer, vol. 2(2), pages 207-219, August.
  16. John Pezzey, 1992. "Sustainability: an interdisciplinary guide," Environmental Values, White Horse Press, vol. 1(4), pages 321-362, November.
  17. Bovenberg, A.L. & Ploeg, F. van der, 1994. "Consequences of environmental tax reform for involuntary unemployment and welfare," Discussion Paper 1994-8, Tilburg University, Center for Economic Research.
  18. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
  19. A. Bovenberg & Frederick Van der Ploeg, 1998. "Consequences of Environmental Tax Reform for Unemployment and Welfare," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 12(2), pages 137-150, September.
  20. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
  21. Bovenberg, A.L. & Smulders, S., 1993. "Environmental Quality and Pollution-Saving Technological Change in Two- Sector Endogenous Growth Model," Papers 9321, Tilburg - Center for Economic Research.
  22. 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.
  23. van Marrewijk, Charles & van der Ploeg, Federick & Verbeek, Jos, 1993. "Is growth bad for the environment? Pollution, abatement, and endogenous growth," Policy Research Working Paper Series 1151, The World Bank.
  24. Søren Nielsen & Lars Pedersen & Peter Sørensen, 1995. "Environmental policy, pollution, unemployment, and endogenous growth," International Tax and Public Finance, Springer, vol. 2(2), pages 185-205, August.
  25. 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.
  26. Hesse, Dieter M & Tarkka, Helena, 1986. " The Demand for Capital, Labor and Energy in European Manufacturing Industry before and after the Oil Price Shocks," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(3), pages 529-46.
  27. Griffin, James M, 1981. "Engineering and Econometric Interpretations of Energy-Capital Complementarity: Comment," American Economic Review, American Economic Association, vol. 71(5), pages 1100-1104, December.
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