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Environmental Policy, Public Finance and the Labour Market in a Second- Best World

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Author Info

  • Bovenberg, A.L.
  • Van Der Ploeg, F.

Abstract

Environmental and tax policies and the optimal provision of clean and dirty public goods are analysed within the context of a second-best framework of optimal taxation. Households consume both clean and dirty commodities. Degradation of the natural environment occurs due to the consumption of dirty private and public goods, but can be offset when the government engages in abatement activities. The `double dividend' hypothesis, i.e. raise the dirt tax and reduce the labour tax in order to enhance both environmental quality and employment, fails. Increased environmental concern implies a higher dirt tax, a lower tax on labour, less employment and economic activity and a cleaner environment. If the elasticity of substitution between private consumption commodities and leisure is large, and that between clean and dirty goods is small, public consumption expands while private consumption contracts. Otherwise, public consumption falls.

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Bibliographic Info

Paper provided by Tilburg - Center for Economic Research in its series Papers with number 9243.

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Length: 35 pages
Date of creation: 1992
Date of revision:
Handle: RePEc:fth:tilbur:9243

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Postal: TILBURG UNIVERSITY, CENTER FOR ECONOMIC RESEARCH, 5000 LE TILBURG THE NETHERLANDS.
Phone: 31 13 4663050
Fax: 31 13 4663066
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Web page: http://center.uvt.nl/
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Keywords: environmental policy ; labour market;

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References

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  1. Bovenberg, A.L. & De Mooij, R., 1992. "Environmental Taxation and Labour-Market Distortions," Papers 9252, Tilburg - Center for Economic Research.
  2. Thurow, Lester C, 1971. "The Income Distribution as a Pure Public Good," The Quarterly Journal of Economics, MIT Press, vol. 85(2), pages 327-36, May.
  3. Pearce, David W, 1991. "The Role of Carbon Taxes in Adjusting to Global Warming," Economic Journal, Royal Economic Society, vol. 101(407), pages 938-48, July.
  4. Auerbach, Alan J., 1985. "The theory of excess burden and optimal taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127 Elsevier.
  5. Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374 Elsevier.
  6. Drissen, E & van Winden, F, 1991. "Social Security in a General Equilibrium Model with Endogenous Government Behavior," Journal of Population Economics, Springer, vol. 4(2), pages 89-110, May.
  7. Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 119-28, January.
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