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Nonseparable Utility and the Double Dividend Debate: Reconsidering the Tax-Interaction Effect

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  • Jesse Schwartz
  • Robert Repetto

Abstract

The literature on the use of environmental taxes inthe presence of distortionary (labor) taxes warns thata partial-equilibrium Pigouvian tax analysis is notappropriate because increasing the price of dirtygoods can futher aggravate the prexisting distortions. This argument is most frequently made assuming thatlabor is taxed to meet a fixed revenue requirement.When a dirty good is also taxed, others argue thatthis lowers workers' real wages, causing people toreduce their labor supply below its already suboptimallevel, aggravating labor market distortions. However,most papers ignore the effect that a cleanerenvironment can have on labor supply. That is, mostpast work has assumed that the quality of theenvironment is weakly separable in the utilityfunction. We argue that a cleaner environment canincrease labor supply, at least partially offsettingany incentive for workers to decrease their laborsupply. Further, we show explicitly how relaxing theseparability assumption affects the standardresults. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • Jesse Schwartz & Robert Repetto, 2000. "Nonseparable Utility and the Double Dividend Debate: Reconsidering the Tax-Interaction Effect," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 15(2), pages 149-157, February.
    • Handle: RePEc:kap:enreec:v:15:y:2000:i:2:p:149-157
    DOI: 10.1023/A:1008314717413
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    References listed on IDEAS

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    Cited by:

    1. Hanna, Rema & Oliva, Paulina, 2015. "The effect of pollution on labor supply: Evidence from a natural experiment in Mexico City," Journal of Public Economics, Elsevier, vol. 122(C), pages 68-79.
    2. Jan Siegmeier & Linus Mattauch & Max Franks & David Klenert & Anselm Schultes & Ottmar Edenhofer, 2015. "A Public Finance Perspective on Climate Policy: Six Interactions That May Enhance Welfare," Working Papers 2015.31, Fondazione Eni Enrico Mattei.
    3. Ronnie Schöb, 2003. "The Double Dividend Hypothesis of Environmental Taxes: A Survey," CESifo Working Paper Series 946, CESifo.
    4. Jean-Christophe Caffet, 2005. "Health effects and optimal environmental taxes in welfare state countries," Post-Print halshs-00194917, HAL.
    5. repec:hal:wpaper:hal-00930936 is not listed on IDEAS
    6. Yew-Kwang Ng, 2004. "Optimal Environmental Charges/Taxes: Easy to Estimate and Surplus-yielding," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 28(4), pages 395-408, August.
    7. Haradhan Kumar Mohajan, 2011. "Optimal Environmental Taxes Due to Health Effect," KASBIT Business Journals (KBJ), Khadim Ali Shah Bukhari Institute of Technology (KASBIT), vol. 4, pages 1-19, December.
    8. Marcelo Arbex & Christian Trudeau, 2015. "Heterogeneous preferences, atmospheric externalities, and environmental taxation," Working Papers 1503, University of Windsor, Department of Economics, revised Jun 2016.
    9. Mathieu-Bolh, Nathalie & Pautrel, Xavier, 2016. "Reassessing the effects of environmental taxation when pollution affects health over the life-cycle," Economic Modelling, Elsevier, vol. 52(PB), pages 310-321.
    10. 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).
    11. Inge Mayeres & Denise Van Regemorter, 2008. "Modelling the Health Related Benefits of Environmental Policies and Their Feedback Effects: A CGE Analysis for the EU Countries with GEM-E3," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 135-150.
    12. David Meintrup & Chang Woon Nam, 2009. "Shadow Market Area for Air Pollutants," Environment and Planning B, , vol. 36(4), pages 664-681, August.
    13. Llop Llop, Maria, 2016. "A second-best analysis of alternative instruments for the preservation of natural resources?," Working Papers 2072/261533, Universitat Rovira i Virgili, Department of Economics.
    14. Inge Mayeres & Denise Van Regemorter, 2003. "Modelling the health related benefits of environmental policies - a CGE analysis for the eu countries with gem-e3," Energy, Transport and Environment Working Papers Series ete0310, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    15. 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 1-31, January.
    16. Williams III, Roberton C., 2003. "Health effects and optimal environmental taxes," Journal of Public Economics, Elsevier, vol. 87(2), pages 323-335, February.
    17. Rivers, Nicholas, 2013. "Renewable energy and unemployment: A general equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 35(4), pages 467-485.
    18. William Jaeger, 2011. "The Welfare Effects of Environmental Taxation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(1), pages 101-119, May.
    19. Nathalie Mathieu-Bolh & Xavier Pautrel, 2014. "Environmental taxation, health and the life-cycle," Working Papers hal-00990256, HAL.
    20. Hirazawa, Makoto & Saito, Koichi & Yakita, Akira, 2011. "Effects of international sharing of pollution abatement burdens on income inequality among countries," Journal of Economic Dynamics and Control, Elsevier, vol. 35(10), pages 1615-1625, October.
    21. Çağatay Koç, 2007. "Environmental Quality, Medical Care Demand and Environmental Tax Interactions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(2), pages 431-443, June.
    22. Brian Murray & Andrew Keeler & Walter Thurman, 2005. "Tax Interaction Effects, Environmental Regulation, and “Rule of Thumb” Adjustments to Social Cost," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 30(1), pages 73-92, January.
    23. 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.

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