Environmental Taxation and the "Double Dividend:" A Reader's Guide
AbstractIn recent years there has been great interest in the possibility of substituting environmentally motivated or 'green' taxes for ordinary income taxes. Some have suggested that such revenue-neutral reforms might offer a 'double dividend:' not only (1) improve the environment but also (2) reduce certain costs of the tax system. This paper articulates different notions of 'double dividend' and examines the theoretical and empirical evidence for each. It also draws connections between the double dividend issue and principles of optimal environmetal taxation in a second-best setting. A weak double dividend claim is that returning tax revenues through cuts in distortionary taxes leads to cost savings relative to the case where revenues are returned lump sum. This claim is easily defended on theoretical grounds and (thankfully) receives wide support from numerical simulations.The stronger versions contend that revenue-neutral swaps of environmental taxes for ordinary distortionary taxes involve zero or negative gross costs.Analyses numerical results tend to cast doubt on the strong double dividend claim.Yet the theoretical case against the strong form is not air-tight, and numerical dividend claim is dividend claim is rejected (upheld) are related to the conditions where the second-best optimal environmental tax is less than (greater than) the marginal environmental damages.The difficulty of establishing a strong double dividend claim heightens the importance of attending to and evaluating the (environmental) benefits from environmental taxes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4896.
Date of creation: Oct 1994
Date of revision:
Publication status: published as ITPF, Vol. 2, no. 2 (August 1995): 157-183.
Note: PE EEE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Terkla, David, 1984. "The efficiency value of effluent tax revenues," Journal of Environmental Economics and Management, Elsevier, vol. 11(2), pages 107-123, June.
- Anwar Shah & Bjorn Larsen, 2008.
"Carbon taxes, the greenhouse effect, and developing countries,"
CEMA Working Papers
583, China Economics and Management Academy, Central University of Finance and Economics.
- Anwar Shah & Bjorn Larsen, 2014. "Carbon taxes, the greenhouse effect, and developing countries," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 353-402, May.
- Shah, Anwar & Larsen, Bjorn, 1992. "Carbon taxes, the greenhouse effect, and developing countries," Policy Research Working Paper Series 957, The World Bank.
- Nordhaus, William D, 1993. "Optimal Greenhouse-Gas Reductions and Tax Policy in the "Dice" Model," American Economic Review, American Economic Association, vol. 83(2), pages 313-17, May.
- Bovenberg, A.L. & De Mooij, R., 1992.
"Environmental Taxation and Labour-Market Distortions,"
9252, Tilburg - Center for Economic Research.
- Bovenberg, A.L. & Mooij, R.A. de, 1992. "Environmental taxation and labour-market distortions," Discussion Paper 1992-52, Tilburg University, Center for Economic Research.
- Jerry A. Hausman, 1983.
"Taxes and Labor Supply,"
NBER Working Papers
1102, National Bureau of Economic Research, Inc.
- 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.
- Dixit, Avinash, 1975. "Welfare effects of tax and price changes," Journal of Public Economics, Elsevier, vol. 4(2), pages 103-123, February.
- Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-38, March.
- Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
- Bertrand, Trent J & Vanek, Jaroslav, 1971. "The Theory of Tariffs, Taxes, and Subsidies: Some Aspects of the Second Best," American Economic Review, American Economic Association, vol. 61(5), pages 925-31, December.
- Charles L. Ballard & Don Fullerton, 1993.
"Distortionary Taxes and the Provision of Public Goods,"
NBER Working Papers
3506, National Bureau of Economic Research, Inc.
- Charles L. Ballard & Don Fullerton, 1992. "Distortionary Taxes and the Provision of Public Goods," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 117-131, Summer.
- Carraro, Carlo & Galeotti, Marzio & Gallo, Massimo, 1996. "Environmental taxation and unemployment: Some evidence on the 'double dividend hypothesis' in Europe," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 141-181, October.
- Dasgupta,P. S. & Heal,G. M., 1985. "Economic Theory and Exhaustible Resources," Cambridge Books, Cambridge University Press, number 9780521297615, April.
- Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
- Hackett Steven & Schlager Edella & Walker James, 1994. "The Role of Communication in Resolving Commons Dilemmas: Experimental Evidence with Heterogeneous Appropriators," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 99-126, September.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Macro, Multipliers and the Environment
by Michael Roberts in Greed, Green and Grains on 2013-07-06 19:34:00
- Bye, Brita, 2000. "Environmental Tax Reform and Producer Foresight: An Intertemporal Computable General Equilibrium Analysis," Journal of Policy Modeling, Elsevier, vol. 22(6), pages 719-752, November.
- repec:hal:ciredw:hal-00866410 is not listed on IDEAS
- Ross McKitrick, 1997.
"Double Dividend Environmental Taxation and Canadian Carbon Emissions Control,"
Canadian Public Policy,
University of Toronto Press, vol. 23(4), pages 417-438, December.
- McKitrick, R, 1996. "Double Dividended Environmental Taxation and Canadian Carbon Emissions Control," Working Papers 1996-10, University of Guelph, Department of Economics and Finance.
- repec:hal:wpaper:hal-00866410 is not listed on IDEAS
- Jean-Christophe Caffet, 2005. "Health effects and optimal environmental taxes in welfare state countries," Cahiers de la Maison des Sciences Economiques v05049, Université Panthéon-Sorbonne (Paris 1).
- Jian Zhang, 2005. "Environmental Taxation in Energy Sector - A Theoretical and Applied Analysis," Computing in Economics and Finance 2005 213, Society for Computational Economics.
- Rodica Loisel, 2009. "Environmental climate instruments in Romania: A comparative approach using dynamic CGE modelling," Post-Print halshs-00441491, HAL.
- Simon Baptist & Cameron Hepburn, 2012. "Intermediate inputs and economic productivity," Grantham Research Institute on Climate Change and the Environment Working Papers 95, Grantham Research Institute on Climate Change and the Environment.
- Raúl O'Ryan & Sebastian Miller & Carlos J. de Miguel, 2001. "Environmental Taxes, Inefficient Subsidies and Income Distribution in Chile: A CGE framework," Documentos de Trabajo 98, Centro de Economía Aplicada, Universidad de Chile.
- Hourcade, Jean-Charles & Chapuis, Thierry, 1995. "No-regret potentials and technical innovation : A viability approach to integrated assessment of climate policies," Energy Policy, Elsevier, vol. 23(4-5), pages 433-445.
- Loisel, Rodica, 2009. "Environmental climate instruments in Romania: A comparative approach using dynamic CGE modelling," Energy Policy, Elsevier, vol. 37(6), pages 2190-2204, June.
- repec:hal:ciredw:hal-00866409 is not listed on IDEAS
- Annegrete Bruvoll & Karin Ibenholt, 1998. "Green Throughput Taxation: Environmental and Economic Consequences," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 12(4), pages 387-401, December.
- 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.
- Walls, Margaret & Hanson, Jean, 1996. "Distributional Impacts of an Environmental Tax Shift: The Case of Motor Vehicle Emissions Taxes," Discussion Papers dp-96-11, Resources For the Future.
- A. Markandya, 2000. "Employment and Environmental Protection," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 15(4), pages 297-322, April.
- Hourcade, Jean-Charles & Robinson, John, 1996. "Mitigating factors : Assessing the costs of reducing GHG emissions," Energy Policy, Elsevier, vol. 24(10-11), pages 863-873.
- Johnstone, Nick & Alavalapati, Janaki R.R., 1998. "The Distributional Effects of Environmental Tax Reform," Discussion Papers 24140, International Institute for Environment and Development, Environmental Economics Programme.
- repec:hal:wpaper:hal-00866409 is not listed on IDEAS
- Jean-Charles Hourcade & Frédéric Ghersi, 1998. "De Kyoto à Buenos Aires : l'émergence d'un nouveau contexte pour la compétition industrielle," Post-Print hal-00547584, HAL.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.