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Environmental-tax financed Social Security Tax Cuts and the Double Dividend

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  • Tetsuo Ono

Abstract

This paper presents a two-period overlapping-generations model in which (i) firms create environmentally harmful emissions as by-products of production, and (ii) social security tax revenue from the working young is transferred to the retired elderly as pay-as-you go social security benefits. In this framework, the paper considers a revenue-neutral reform in which the government undertakes an environmental-tax-financed social security tax cut; the environmental-tax revenue is utilized as a means of financing social security benefits. It is shown that the reform attains a double dividend - namely, improvement is demonstrated in both the nonenvironmental and the environmental utility - when (i) the economy attains a dynamically inefficient equilibrium, (ii) the share of capital (labor) is low (high), and (iii) the social security tax rate before the reform lies within a certain range.

Suggested Citation

  • Tetsuo Ono, 2005. "Environmental-tax financed Social Security Tax Cuts and the Double Dividend," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(2), pages 178-178, July.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200507)61:2_178:efsstc_2.0.tx_2-g
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    1. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts: A Meaningful Alternative to Deficit Accounting," NBER Chapters,in: Tax Policy and the Economy, Volume 5, pages 55-110 National Bureau of Economic Research, Inc.
    2. Auerbach, Alan J & Gokhale, Jagadeesh & Kotlikoff, Laurence J, 1992. " Generational Accounting: A New Approach to Understanding the Effects of Fiscal Policy on Saving," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(2), pages 303-318.
    3. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1994. "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 73-94, Winter.
    4. Laurence J. Kotlikoff & Willi Leibfritz & Willi Leibfritz, 1999. "An International Comparison of Generational Accounts," NBER Chapters,in: Generational Accounting around the World, pages 73-102 National Bureau of Economic Research, Inc.
    5. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1992. "Social Security and Medicare Policy from the Perspective of Generational Accounting," NBER Chapters,in: Tax Policy and the Economy, Volume 6, pages 129-145 National Bureau of Economic Research, Inc.
    6. Gerdtham, Ulf-G. & Sogaard, Jes & Andersson, Fredrik & Jonsson, Bengt, 1992. "An econometric analysis of health care expenditure: A cross-section study of the OECD countries," Journal of Health Economics, Elsevier, vol. 11(1), pages 63-84, May.
    7. Bernd Raffelhuschen & Laurence J. Kotlikoff, 1999. "Generational Accounting around the Globe," American Economic Review, American Economic Association, vol. 89(2), pages 161-166, May.
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    10. Bernd Raffelhuschen & Jan Walliser & Willi Leibfritz, 1999. "Unification and Aging in Germany: Who Pays and When?," NBER Chapters,in: Generational Accounting around the World, pages 277-298 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Lars Kunze & Christiane Schuppert, 2009. "Financing Social Security by Taxing Capital Income – A Bad Idea?," Ruhr Economic Papers 0090, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. Mouez Fodha & Thomas Seegmuller & Hiroaki Yamagami, 2014. "Environmental Policies under Debt Constraint," Working Papers halshs-01023798, HAL.
    3. Lars Kunze & Christiane Schuppert, 2010. "Financing social security by taxing capital income: A bad idea?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(3), pages 243-262, September.
    4. repec:zbw:rwirep:0090 is not listed on IDEAS

    More about this item

    Keywords

    revenue-neutral reform; social security tax cuts; social security reform; overlapping generations; environmental tax reform;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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