Evaluating Tax Reforms in the Presence of Externalities
According to the double-dividend hypothesis, revenue-neutral green tax reforms are expected both to improve the quality of the environment and to reduce the existing tax distortions. This paper develops welfare measures which are used to estimate these dividends separately. It is shown that the existing tax system and the choice of the tax rate cuts which accompany an increase in green taxes have considerable impact on the magnitude of the environmental dividend. Even a negative impact cannot be ruled out. Furthermore, the welfare measures allow the authors to analyze the trade-off between the two dividends and to identify welfare-improving tax reforms. Copyright 1996 by Royal Economic Society.
Volume (Year): 48 (1996)
Issue (Month): 4 (October)
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