A "Double Dividend", After All?
The consensus view among economists seems to be that a green tax reform is unlikely to be associated with a "double dividend" (Bovenberg 1998). However, the results derived in the present paper suggest that this view needs to be qualified. We demonstrate that a green tax reform is likely to be associated with a significant "double dividend" if the government prior to taking the environmental aspect into account has adopted a proportional tax structure due to the administrative costs involved in differentiating commodity tax rates, and if the green tax reform stimulates the labour supply and has desirable income distributional effects.
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