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Taxation, Pollution, Unemployment and Growth: Could there be a "Triple Dividend" from a Green Tax Reform?

Author

Listed:
  • Peter Birch Sørensen

    (Copenhagen Business School)

  • Lars Haagen Pedersen

    (Institute of Economics, University of Copenhagen)

  • Søren Bo Nielsen

    (Copenhagen Business School)

Abstract

The paper develops a model of endogenous economic growth, where sustainable growth is driven by private capital accumulation and productive government spending on education and pollution abatement. The economy is distorted by pollution externalities in production and consumption; by taxes and transfers, and by union monopoly power creating involuntary unemployment. Within this framework we analyse the effects of various "green" tax policies on pollution, unemployment, growth, and consumer welfare. Among other things we highlight the differences between pollution taxes which are levied for general revenue purposes and pollution taxes which are "earmarked" for financing expenditures on pollution abatement. We also investigate the effects of a switch in the policy regime from quantity control of pollution combined with "grandfathering" of pollution rights to regulation via emission charges. We find that such a regime shift has the potential to raise employment, growth and welfare without damaging the environment, because emission charges improve the efficiency of the tax system by serving as an indirect method of taxing away pure profits.

Suggested Citation

  • Peter Birch Sørensen & Lars Haagen Pedersen & Søren Bo Nielsen, 1994. "Taxation, Pollution, Unemployment and Growth: Could there be a "Triple Dividend" from a Green Tax Reform?," Discussion Papers 94-14, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:9414
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    Cited by:

    1. Lans Bovenberg, A. & de Mooij, Ruud A., 1997. "Environmental tax reform and endogenous growth," Journal of Public Economics, Elsevier, vol. 63(2), pages 207-237, January.
    2. Sjak Smulders, 1995. "Entropy, environment, and endogenous economic growth," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 319-340, August.
    3. 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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