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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, Economics Department, Indiana University Bloomington.
  • Handle: RePEc:inu:caeprp:2006017
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    References listed on IDEAS

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    Cited by:

    1. Alfredo M. Pereira & Rui M. Pereira, 2017. "Reducing carbon emissions in Portugal: the relative roles of fossil fuel prices, energy efficiency, and carbon taxation," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 60(10), pages 1825-1852, October.
    2. Gerhard Glomm & Juergen Jung, 2012. "A Macroeconomic Analysis of Energy Subsidies in a Small Open Economy: The Case of Egypt," Caepr Working Papers 2012-006, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    3. Heshmati, Almas, 2015. "A Review of the Circular Economy and its Implementation," IZA Discussion Papers 9611, Institute for the Study of Labor (IZA).
    4. Bleischwitz, Raimund & Bader, Nikolas, 2010. "Policies for the transition towards a hydrogen economy: the EU case," Energy Policy, Elsevier, vol. 38(10), pages 5388-5398, October.
    5. Giménez, Eduardo L. & Rodríguez, Miguel, 2010. "Reevaluating the first and the second dividends of environmental tax reforms," Energy Policy, Elsevier, vol. 38(11), pages 6654-6661, November.
    6. Maurizio Ciaschini & Rosita Pretaroli & Francesca Severini & Claudio Socci, 2013. "Environmental tax and regional government consumption expenditure in a fiscal federalism system," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2013(2), pages 129-152.
    7. repec:kap:enreec:v:67:y:2017:i:2:d:10.1007_s10640-015-9984-z is not listed on IDEAS
    8. Philander, Kahlil S. & Bernhard, Bo J. & Wimmer, Bradley S. & Singh, Ashok K. & Eadington, William R., 2015. "U.S. casino revenue taxes and short-run labor outcomes," Journal of Policy Modeling, Elsevier, vol. 37(1), pages 35-46.
    9. Škare, Marinko & Golja, Tea, 2014. "The impact of government CSR supporting policies on economic growth," Journal of Policy Modeling, Elsevier, vol. 36(3), pages 562-577.
    10. Allan, Grant & Lecca, Patrizio & McGregor, Peter & Swales, Kim, 2014. "The economic and environmental impact of a carbon tax for Scotland: A computable general equilibrium analysis," Ecological Economics, Elsevier, vol. 100(C), pages 40-50.
    11. Pereira, Alfredo M. & Pereira, Rui M., 2014. "On the environmental, economic and budgetary impacts of fossil fuel prices: A dynamic general equilibrium analysis of the Portuguese case," Energy Economics, Elsevier, vol. 42(C), pages 248-261.
    12. repec:eee:resene:v:50:y:2017:i:c:p:135-163 is not listed on IDEAS
    13. de Miguel, Carlos & Manzano, Baltasar, 2011. "Green tax reforms and habits," Resource and Energy Economics, Elsevier, vol. 33(1), pages 231-246, January.
    14. Heshmati, Almas, 2014. "An Empirical Survey of the Ramifications of a Green Economy," Working Paper Series in Economics and Institutions of Innovation 356, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    15. repec:eee:jpolmo:v:40:y:2018:i:1:p:194-223 is not listed on IDEAS
    16. Oueslati, Walid, 2014. "Environmental tax reform: Short-term versus long-term macroeconomic effects," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 190-201.
    17. Walid Oueslati, 2013. "Short and Long-term Effects of Environmental Tax Reform," Working Papers 2013.09, Fondazione Eni Enrico Mattei.
    18. Orlov, Anton & Grethe, Harald & McDonald, Scott, 2013. "Carbon taxation in Russia: Prospects for a double dividend and improved energy efficiency," Energy Economics, Elsevier, vol. 37(C), pages 128-140.

    More about this item

    Keywords

    Green taxes; Double Dividends; Capital Accumulation; Welfare;

    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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