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The Double Dividend Hypothesis and Trade Liberalization

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  • Sen, P.
  • Smulders, J.A.

    (Tilburg University, Center for Economic Research)

Abstract

This paper studies how simultaneously liberalizing trade and tightening environmental policy affect welfare in a second-best world. We consider a three-good two-factor small open economy. We allow for non-tradables and for market power in the export market. The government is constrained to balance its budget at all times through distortionary taxes: a given income transfer has to be financed out of tariff and pollution tax revenue. We show that the switch from trade tariffs to environmental taxes can yield an increase in real income thus providing a second dividend in addition to the environmental improvement.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2000-06.

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Date of creation: 2000
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Handle: RePEc:dgr:kubcen:200006

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

Related research

Keywords: environmental policy; trade liberalization; double dividend; non-tradables;

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References

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  1. 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.
  2. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
  3. Bovenberg, A.L., 1995. "Environmental taxation and employment," Open Access publications from Tilburg University urn:nbn:nl:ui:12-153065, Tilburg University.
  4. Cooper, Richard N., 2000. "Trade and the environment," Environment and Development Economics, Cambridge University Press, vol. 5(04), pages 483-529, October.
  5. Krutilla, Kerry, 1991. "Environmental regulation in an open economy," Journal of Environmental Economics and Management, Elsevier, vol. 20(2), pages 127-142, March.
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Cited by:
  1. Orlov, Anton & Grethe, Harald & McDonald, Scott, 2013. "Carbon taxation in Russia: Prospects for a double dividend and improved energy efficiency," Energy Economics, Elsevier, vol. 37(C), pages 128-140.

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