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Environmental tax reform and endogenous growth

  • Lans Bovenberg, A.
  • de Mooij, Ruud A.

This paper explores the effects of an environmental tax reform on pollution, economic growth and welfare in an endogenous growth model with pre-existing tax distortions. We find that a shift in the tax mix away from output towards pollution may raise economic growth through two channels. The first channel is an environmental production externality, which determines the positive effect of lower aggregate pollution on the productivity of capital. The second channel is a shift in the tax burden away from the net return on investment towards profits. The paper also shows that, if tax shifting towards profits is large and environmental amenities are unimportant, the optimal tax on pollution may exceed its Pigovian level.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 63 (1997)
Issue (Month): 2 (January)
Pages: 207-237

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Handle: RePEc:eee:pubeco:v:63:y:1997:i:2:p:207-237
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Bovenberg, A.L. & van der Ploeg, F., 1992. "Environmental policy, public finance and the labour market in a second-best world," Discussion Paper 1992-43, Tilburg University, Center for Economic Research.
  2. repec:ner:tilbur:urn:nbn:nl:ui:12-72815 is not listed on IDEAS
  3. Bovenberg, A.L. & Smulders, J.A., 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Other publications TiSEM 6784bb12-71fb-45a5-bf7e-8, Tilburg University, School of Economics and Management.
  4. Anton B. T. M. Van Schaik & Henri L. F. De Groot, 1998. "Unemployment and Endogenous Growth," LABOUR, CEIS, vol. 12(2), pages 189-219, 07.
  5. Hesse, Dieter M & Tarkka, Helena, 1986. " The Demand for Capital, Labor and Energy in European Manufacturing Industry before and after the Oil Price Shocks," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(3), pages 529-46.
  6. Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers.
  7. John Pezzey, 1992. "Sustainability: an interdisciplinary guide," Environmental Values, White Horse Press, vol. 1(4), pages 321-362, November.
  8. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
  9. repec:dgr:vuarem:1993-55 is not listed on IDEAS
  10. 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.
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  12. Berndt, Ernst R & Wood, David O, 1979. "Engineering and Econometric Interpretations of Energy-Capital Complementarity," American Economic Review, American Economic Association, vol. 69(3), pages 342-54, June.
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  14. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer, vol. 2(2), pages 157-183, August.
  15. Bovenberg, A.L. & Smulders, J.A., 1994. "Transitional impact of environmental policy in an endogenous growth model," Discussion Paper 1994-50, Tilburg University, Center for Economic Research.
  16. Frederick Ploeg & Cees Withagen, 1991. "Pollution control and the Ramsey problem," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(2), pages 215-236, June.
  17. 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.
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  19. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
  20. Anne Brendemoen & Haakon Vennemo, 1994. "A Climate Treaty and the Norwegian Economy: A CGE Assessment," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 77-93.
  21. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
  22. Tahvonen Olli & Kuuluvainen Jari, 1993. "Economic Growth, Pollution, and Renewable Resources," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 101-118, March.
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  24. S. Proost & D. Regemorter, 1995. "The double dividend and the role of inequality aversion and macroeconomic regimes," International Tax and Public Finance, Springer, vol. 2(2), pages 207-219, August.
  25. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-89, September.
  26. Goulder Lawrence H., 1995. "Effects of Carbon Taxes in an Economy with Prior Tax Distortions: An Intertemporal General Equilibrium Analysis," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 271-297, November.
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  28. Pindyck, Robert S, 1979. "Interfuel Substitution and the Industrial Demand for Energy: An International Comparison," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 169-79, May.
  29. Bovenberg, A.L. & van der Ploeg, F., 1994. "Consequences of environmental tax reform for involuntary unemployment and welfare," Discussion Paper 1994-8, Tilburg University, Center for Economic Research.
  30. Griffin, James M, 1981. "Engineering and Econometric Interpretations of Energy-Capital Complementarity: Comment," American Economic Review, American Economic Association, vol. 71(5), pages 1100-1104, December.
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