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Green Taxes and Double Dividends in a Dynamic Economy

Author

Listed:
  • Gerhard Glomm

    (Indiana University Bloomington)

  • Daiji Kawaguchi

    (Hitotsubashi University)

  • Facundo Sepulveda

    (Universidad de Santiago de Chile)

Abstract

This paper examines a revenue neutral green tax reform along the lines of the Double Dividend hypothesis. Using a dynamic general equilibrium model calibrated to the US economy, we find that increasing gasoline taxes and using the revenue to reduce capital income taxes does indeed deliver both types of welfare gains: from higher consumption of market goods (an efficiency dividend), and from a better environmental quality (a green dividend), even though in the new steady state environmental quality may worsen. We also find that, given the available evidence on how much households are willing to pay for improvements in air quality, the size of the green dividend is very small in absolute magnitude, and much smaller than the efficiency dividend.

Suggested Citation

  • Gerhard Glomm & Daiji Kawaguchi & Facundo Sepulveda, 2006. "Green Taxes and Double Dividends in a Dynamic Economy," CAEPR Working Papers 2006-017, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    • Handle: RePEc:inu:caeprp:2006017
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    References listed on IDEAS

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    More about this item

    Keywords

    Green taxes; Double Dividends; Capital Accumulation; Welfare;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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