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Double Dividend in an Endogenous Growth Model with Pollution and Abatement

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Abstract

This paper discusses wether by implementing an environmental tax reform, a government may achieve a double dividend. We consider the simplest endogenous growth model (AK model) and include a negative environmental externality in the utility function. Pollution flow can be reduced by means of private abatenment activities. There is a predetermined non-optimal level of public spending financed by environmental taxes and pre-existing taxes on income and consumption. The major contribution of the paper is to show that, under this simple framework, a double dividend may arise if tax reform consists of substituing environmental tax for income tax, in such a way that the government budget constraint holds in a present value sense.

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  • Esther Fernández & Rafaela Pérez Sánchez & Jesús Ruiz, 2004. "Double Dividend in an Endogenous Growth Model with Pollution and Abatement," Economic Working Papers at Centro de Estudios Andaluces E2004/15, Centro de Estudios Andaluces.
    • Handle: RePEc:cea:doctra:e2004_15
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    1. A. Lans Bovenberg & Frederick van der Ploeg, 2002. "Environmental Policy, Public Finance and the Labour Market in a Second-Best World," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 6, pages 112-153, Edward Elgar Publishing.
    2. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-1089, September.
    3. Smulders, Sjak & Gradus, Raymond, 1996. "Pollution abatement and long-term growth," European Journal of Political Economy, Elsevier, vol. 12(3), pages 505-532, November.
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    7. Frank Hettich, 2000. "Economic Growth and Environmental Policy," Books, Edward Elgar Publishing, number 2086.
    8. 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.
    9. S. Proost & D. van Regemorter, 2002. "The Double Dividend and the Role of Inequality Aversion and Macroeconomic Regimes," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 30, pages 596-608, Edward Elgar Publishing.
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    12. Ian W.H. Parry, 2002. "Pollution Taxes and Revenue Reycling," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 15, pages 235-248, Edward Elgar Publishing.
    13. Pecorino, Paul, 1995. "Tax rates and tax revenues in a model of growth through human capital accumulation," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 527-539, December.
    14. Ireland, Peter N., 1994. "Supply-side economics and endogenous growth," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 559-571, June.
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    Cited by:

    1. Fernández, Esther & Pérez, Rafaela & Ruiz, Jesús, 2010. "Double dividend, dynamic Laffer effects and public abatement," Economic Modelling, Elsevier, vol. 27(3), pages 656-665, May.

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    More about this item

    Keywords

    Environmental tax reform; Double dividend; Abatement activities.;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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