IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v45y2015icp1-13.html
   My bibliography  Save this article

Growth and welfare effects of environmental tax reform and public spending policy

Author

Listed:
  • Oueslati, Walid

Abstract

This paper considers the implications of environmental tax reform and public spending policy for growth and welfare. Using a two-sector endogenous growth model where the interactions between health, education, and the environment are taken into account, we show that revenue-positive tax reforms combined with a change in the public spending structure may improve long-run growth and welfare. However, this outcome incurs relatively high welfare cost during the transition phase. This is particularly the case when the spending policy favors education spending.

Suggested Citation

  • Oueslati, Walid, 2015. "Growth and welfare effects of environmental tax reform and public spending policy," Economic Modelling, Elsevier, vol. 45(C), pages 1-13.
    • Handle: RePEc:eee:ecmode:v:45:y:2015:i:c:p:1-13
    DOI: 10.1016/j.econmod.2014.10.040
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999314003976
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2014.10.040?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Stokey, Nancy L & Rebelo, Sergio, 1995. "Growth Effects of Flat-Rate Taxes," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 519-550, June.
    2. Francesco Ricci, 2007. "Channels of transmission of environmental policy to economic growth," Post-Print hal-03062228, HAL.
    3. Hubert Kempf & Stéphane Rossignol, 2007. "Is Inequality Harmful For The Environment In A Growing Economy?," Economics and Politics, Wiley Blackwell, vol. 19(1), pages 53-71, March.
    4. Grimaud, Andre, 1999. "Pollution Permits and Sustainable Growth in a Schumpeterian Model," Journal of Environmental Economics and Management, Elsevier, vol. 38(3), pages 249-266, November.
    5. Giménez, Eduardo L. & Rodríguez, Miguel, 2010. "Reevaluating the first and the second dividends of environmental tax reforms," Energy Policy, Elsevier, vol. 38(11), pages 6654-6661, November.
    6. Harald Uhlig, 1995. "A toolkit for analyzing nonlinear dynamic stochastic models easily," Discussion Paper / Institute for Empirical Macroeconomics 101, Federal Reserve Bank of Minneapolis.
    7. A. Bovenberg, 1999. "Green Tax Reforms and the Double Dividend: an Updated Reader's Guide," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(3), pages 421-443, August.
    8. Smulders, Sjak & Gradus, Raymond, 1996. "Pollution abatement and long-term growth," European Journal of Political Economy, Elsevier, vol. 12(3), pages 505-532, November.
    9. Aloi, Marta & Tournemaine, Frederic, 2011. "Growth effects of environmental policy when pollution affects health," Economic Modelling, Elsevier, vol. 28(4), pages 1683-1695, July.
    10. Ligthart, Jenny E. & van der Ploeg, Frederick, 1994. "Pollution, the cost of public funds and endogenous growth," Economics Letters, Elsevier, vol. 46(4), pages 339-349, December.
    11. Casey B. Mulligan & Xavier Sala-i-Martin, 1993. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 739-773.
    12. Lans Bovenberg, A. & Smulders, Sjak, 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Journal of Public Economics, Elsevier, vol. 57(3), pages 369-391, July.
    13. Ricci, Francesco, 2007. "Channels of transmission of environmental policy to economic growth: A survey of the theory," Ecological Economics, Elsevier, vol. 60(4), pages 688-699, February.
    14. Raymond Gradus & Sjak Smulders, 1993. "The trade-off between environmental care and long-term growth—Pollution in three prototype growth models," Journal of Economics, Springer, vol. 58(1), pages 25-51, February.
    15. Lucas Bretschger & Sjak Smulders, 2007. "Sustainable Resource Use and Economic Dynamics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 36(1), pages 1-13, January.
    16. Fernández, Esther & Pérez, Rafaela & Ruiz, Jesús, 2011. "Optimal green tax reforms yielding double dividend," Energy Policy, Elsevier, vol. 39(7), pages 4253-4263, July.
    17. Chen, Jhy-hwa & Shieh, Jhy-yuan & Chang, Juin-jen & Lai, Ching-chong, 2009. "Growth, welfare and transitional dynamics in an endogenously growing economy with abatement labor," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 423-437, September.
    18. 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.
    19. Frank Hettich, 1998. "Growth effects of a revenue-neutral environmental tax reform," Journal of Economics, Springer, vol. 67(3), pages 287-316, October.
    20. Joshua Graff Zivin & Matthew Neidell, 2013. "Environment, Health, and Human Capital," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 689-730, September.
    21. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
    22. Ortigueira, Salvador, 1998. "Fiscal policy in an endogenous growth model with human capital accumulation," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 323-355, July.
    23. Fullerton, Don & Kim, Seung-Rae, 2008. "Environmental investment and policy with distortionary taxes, and endogenous growth," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 141-154, September.
    24. Michael B. Devereux & David R. F. Love, 1994. "The Effects of Factor Taxation in a Two-Sector Model of Endogenous Growth," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 509-536, August.
    25. Gomme, Paul, 1993. "Money and growth revisited : Measuring the costs of inflation in an endogenous growth model," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 51-77, August.
    26. Hart, Rob, 2004. "Growth, environment and innovation--a model with production vintages and environmentally oriented research," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1078-1098, November.
    27. Hubert Kempf & Stéphane Rossignol, 2007. "Is Inequality Harmful For The Environment In A Growing Economy?," Economics and Politics, Wiley Blackwell, vol. 19(1), pages 53-71, March.
    28. Minoru Nakada, 2004. "Does Environmental Policy Necessarily Discourage Growth?," Journal of Economics, Springer, vol. 81(3), pages 249-275, March.
    29. Uhlig, H.F.H.V.S., 1995. "A toolkit for analyzing nonlinear dynamic stochastic models easily," Other publications TiSEM cc1b2469-9d2f-445a-a2b3-1, Tilburg University, School of Economics and Management.
    30. 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.
    31. 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.
    32. Cansier, Dieter & Krumm, Raimund, 1997. "Air pollutant taxation: an empirical survey," Ecological Economics, Elsevier, vol. 23(1), pages 59-70, October.
    33. Oueslati, Walid, 2002. "Environmental policy in an endogenous growth model with human capital and endogenous labor supply," Economic Modelling, Elsevier, vol. 19(3), pages 487-507, May.
    34. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-834, August.
    35. Alfred Greiner, 2005. "Fiscal Policy In An Endogenous Growth Model With Public Capital And Pollution," The Japanese Economic Review, Japanese Economic Association, vol. 56(1), pages 67-84, March.
    36. Paul Ekins & Stefan Speck, 1999. "Competitiveness and Exemptions From Environmental Taxes in Europe," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 13(4), pages 369-396, June.
    37. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Camille Hainnaux & Thomas Seegmuller, 2022. "Pollution versus Inequality: Tradeoffs for Fiscal Policy," Working Papers hal-03792493, HAL.
    2. Constantinos Challoumis, 2021. "Index of the Cycle of Money - The Case of Greece," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 14(2), pages 58-67, September.
    3. Bahloul Zekkari, Kathia, 2024. "Asset bubble and growth: Elastic labor supply with fiscal policy," Journal of Mathematical Economics, Elsevier, vol. 110(C).
    4. Hassan, Mahmoud & Oueslati, Walid & Rousselière, Damien, 2020. "Environmental taxes, reforms and economic growth: an empirical analysis of panel data," Economic Systems, Elsevier, vol. 44(3).
    5. Pereira, Alfredo & Pereira, Rui, 2016. "On the Optimal Use of Revenues from a CO2 Tax and the Importance of Labor Market Conditions," MPRA Paper 77630, University Library of Munich, Germany.
    6. de Bruin, Kelly & Yakut, Aykut Mert, 2024. "Efficiency–equity trade-off in the Irish carbon tax: A CGE investigation of mixed revenue recycling schemes," Economic Modelling, Elsevier, vol. 134(C).
    7. Huntington, Hillard & Liddle, Brantley, 2022. "How energy prices shape OECD economic growth: Panel evidence from multiple decades," Energy Economics, Elsevier, vol. 111(C).
    8. Yang, Honglin & Wang, Lin & Tian, Lixin, 2015. "Evolution of competition in energy alternative pathway and the influence of energy policy on economic growth," Energy, Elsevier, vol. 88(C), pages 223-233.
    9. Xavier Labandeira & José M. Labeaga & Xiral López-Otero, 2019. "New Green Tax Reforms: Ex-Ante Assessments for Spain," Sustainability, MDPI, vol. 11(20), pages 1-25, October.
    10. Klarl, Torben, 2016. "Pollution externalities, endogenous health and the speed of convergence in an endogenous growth model," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 98-113.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Walid Oueslati, 2013. "Short and Long-term Effects of Environmental Tax Reform," Working Papers 2013.09, Fondazione Eni Enrico Mattei.
    2. Oueslati, Walid, 2014. "Environmental tax reform: Short-term versus long-term macroeconomic effects," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 190-201.
    3. Mahmoud Hassan & Walid Oueslati & Damien Rousselière, 2020. "Exploring the link between energy based taxes and economic growth," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(1), pages 67-87, January.
    4. Chu, Hsun & Lai, Ching-chong, 2014. "Abatement R&D, market imperfections, and environmental policy in an endogenous growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 41(C), pages 20-37.
    5. Hassan, Mahmoud & Oueslati, Walid & Rousselière, Damien, 2020. "Environmental taxes, reforms and economic growth: an empirical analysis of panel data," Economic Systems, Elsevier, vol. 44(3).
    6. Marta Aloi & Frederic Tournemaine, 2013. "Inequality, growth, and environmental quality tradeoffs in a model with human capital accumulation," Canadian Journal of Economics, Canadian Economics Association, vol. 46(3), pages 1123-1155, August.
    7. Francesco Ricci, 2007. "Environmental policy and growth when inputs are differentiated in pollution intensity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 38(3), pages 285-310, November.
    8. Chu, Hsun & Lai, Ching-chong & Liao, Chih-hsing, 2016. "A Note On Environment-Dependent Time Preferences," Macroeconomic Dynamics, Cambridge University Press, vol. 20(6), pages 1652-1667, September.
    9. Fullerton, Don & Kim, Seung-Rae, 2008. "Environmental investment and policy with distortionary taxes, and endogenous growth," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 141-154, September.
    10. Borissov, Kirill & Brausmann, Alexandra & Bretschger, Lucas, 2019. "Carbon pricing, technology transition, and skill-based development," European Economic Review, Elsevier, vol. 118(C), pages 252-269.
    11. Ricci, Francesco, 2007. "Channels of transmission of environmental policy to economic growth: A survey of the theory," Ecological Economics, Elsevier, vol. 60(4), pages 688-699, February.
    12. Frederic Tournemaine & Christopher Tsoukis, 2018. "The Great Transition: Implications From Environmental Policy For The Quality–Quantity Trade-Off In Children-Rearing," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(05), pages 1155-1174, December.
    13. Minoru Nakada, 2010. "Environmental Tax Reform and Growth: Income Tax Cuts or Profits Tax Reduction," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(4), pages 549-565, December.
    14. Frank Hettich, 1998. "Growth effects of a revenue-neutral environmental tax reform," Journal of Economics, Springer, vol. 67(3), pages 287-316, October.
    15. Hettich, Frank, 1997. "Growth effects of a revenue neutral environmental tax reform," Discussion Papers, Series II 351, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    16. Mónica Meireles & Isabel Soares & Óscar Afonso, 2010. "Economic Growth, Ecological Technology and Public Intervention," FEP Working Papers 378, Universidade do Porto, Faculdade de Economia do Porto.
    17. Hettich, Frank & Svane, Minna Selene, 1998. "Environmental policy in a two sector endogenous growth model," Discussion Papers, Series I 290, University of Konstanz, Department of Economics.
    18. Chen Jhy-hwa & Shieh Jhy-yuan & Chang Juin-jen, 2015. "Environmental policy and economic growth: the macroeconomic implications of the health effect," The B.E. Journal of Macroeconomics, De Gruyter, vol. 15(1), pages 223-253, January.
    19. Carlo Carraro & Enrica De Cian & Massimo Tavoni, 2012. "Human Capital, Innovation, and Climate Policy: An Integrated Assessment," Working Papers 2012.18, Fondazione Eni Enrico Mattei.
    20. Chen, Jhy-hwa & Shieh, Jhy-yuan & Chang, Juin-jen & Lai, Ching-chong, 2009. "Growth, welfare and transitional dynamics in an endogenously growing economy with abatement labor," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 423-437, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:45:y:2015:i:c:p:1-13. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.