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Taxing Energy to improve the Environment: Efficiency and Distributional Effects

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Author Info
Ben J. Heijdra () (University of Amsterdam and Tilburg University)
Albert van der Horst () (University of Amsterdam)

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Abstract

We study the effects of environmental tax policy in a dynamic overlapping-generations model of a small open economy with environmental quality incorporated as a durable consumption good. Raising the energy tax may deliver an efficiency gain if agents care enough about the environment. The benefits are unevenly distributed across generations since capital ownership, and the capital loss induced by a tax increase, rises with age. A suitable egalitarian bond policy can be employed in order to ensure everybody gains to the same extent. With this additional instrument the optimal energy tax can be computed. We further consider a tax reform that simultaneously lowers labour taxation and raises the energy tax. This policy delivers qualitatively similar consequences as the first scenario, though all changes are less pronounced. A double dividend may appear soon after the reform but vanishes in the course of the transition.

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Publisher Info
Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 98-022/2.

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Date of creation: 04 Mar 1998
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Handle: RePEc:dgr:uvatin:19980022

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Web page: http://www.tinbergen.nl/

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Related research
Keywords: energy taxation; international trade; environmental policy; intergenerational welfare effects;

Find related papers by JEL classification:
D62 - Microeconomics - - Welfare Economics - - - Externalities
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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  1. Michiel Keyzer & Max Merbis & Roelf Voortman, 2008. "The Biofuel Controversy," De Economist, Springer, vol. 156(4), pages 507-527, December. [Downloadable!] (restricted)
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