Green Taxes and Double Dividends in a Dynamic Economy
Indiana University Bloomington - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)
Hitotsubashi University - Graduate School of Economics
University of Santiago, Chile
May 25, 2004
CAEPR Working Paper No. 2006-017
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.
Number of Pages in PDF File: 34
Keywords: Green taxes, Double Dividends, Capital Accumulation, Welfare
Date posted: October 28, 2005
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