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Environmental Taxes and Productivity: Lessons from Canadian Manufacturing

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  • Akio Yamazaki

    (National Graduate Institute for Policy Studies, Tokyo, Japan)

Abstract

This paper investigates how environmental taxes affect manufacturing productivity by examining British Columbia's revenue-neutral carbon tax. I develop a new hypothesis the "Productivity Dividend Hypothesis" to show that environmental taxes can positively affect productivity by recycling tax revenues to reduce corporate income taxes. This revenue-recycling increases investment and could raise productivity more than environmental taxes lower productivity by diverting resources from production. I evaluate this hypothesis using detailed confidential plant-level data. I find that the carbon tax lowers productivity, although this is offset to some extent by the revenue-recycling. For some plants, the policy generates a net gain in productivity.

Suggested Citation

  • Akio Yamazaki, 2020. "Environmental Taxes and Productivity: Lessons from Canadian Manufacturing," GRIPS Discussion Papers 19-32, National Graduate Institute for Policy Studies.
  • Handle: RePEc:ngi:dpaper:19-32
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    Cited by:

    1. Qi, Yu & Zhang, Jianshun & Chen, Jianwei, 2023. "Tax incentives, environmental regulation and firms’ emission reduction strategies: Evidence from China," Journal of Environmental Economics and Management, Elsevier, vol. 117(C).
    2. Kumbhakar, Subal C. & Badunenko, Oleg & Willox, Michael, 2022. "Do carbon taxes affect economic and environmental efficiency? The case of British Columbia’s manufacturing plants," Energy Economics, Elsevier, vol. 115(C).
    3. Minye Rao & László Vasa & Yudan Xu & Pinghua Chen, 2023. "Spatial and Heterogeneity Analysis of Environmental Taxes’ Impact on China’s Green Economy Development: A Sustainable Development Perspective," Sustainability, MDPI, vol. 15(12), pages 1-16, June.
    4. Li Ji & Tian Zeng, 2022. "Environmental “Fee-to-Tax” and Heavy Pollution Enterprises to De-Capacity," Sustainability, MDPI, vol. 14(9), pages 1-24, April.
    5. Tang, Chang & Qi, Yu & Khan, Naqib Ullah & Tang, Ruwei & Xue, Yan, 2023. "Ultra-low emission standards and corporate production performance: Evidence from Chinese thermal power companies," Energy Policy, Elsevier, vol. 173(C).
    6. Peter Slade & Patrick Lloyd-Smith & Tristan Skolrud, 2020. "The Effect of Carbon Tax on Farm Income: Comment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(2), pages 335-344, October.
    7. Liu, Na & Yao, Xilong & Wan, Fang & Han, Yunfei, 2023. "Are tax revenue recycling schemes based on industry-differentiated carbon tax conducive to realizing the “double dividend”?," Energy Economics, Elsevier, vol. 124(C).
    8. Anton Nugent & Dragana Radicic, 2023. "The Impact of Environmental Management on Labour Productivity," Sustainability, MDPI, vol. 15(16), pages 1-16, August.
    9. Younes Ahmadi & Akio Yamazaki & Philippe Kabore, 2022. "How Do Carbon Taxes Affect Emissions? Plant-Level Evidence from Manufacturing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(2), pages 285-325, June.

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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