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Green Taxes and Double Dividends in a Dynamic Economy

34 Pages Posted: 28 Oct 2005  

Gerhard Glomm

Indiana University Bloomington - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Daiji Kawaguchi

University of Tokyo - Graduate School of Economics

Facundo Sepulveda

University of Santiago, Chile

Date Written: May 25, 2004

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.

Keywords: Green taxes, Double Dividends, Capital Accumulation, Welfare

Suggested Citation

Glomm, Gerhard and Kawaguchi, Daiji and Sepulveda, Facundo, Green Taxes and Double Dividends in a Dynamic Economy (May 25, 2004). CAEPR Working Paper No. 2006-017. Available at SSRN: https://ssrn.com/abstract=830407 or http://dx.doi.org/10.2139/ssrn.830407

Gerhard Glomm (Contact Author)

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States
812-855-7256 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Daiji Kawaguchi

University of Tokyo - Graduate School of Economics ( email )

Tokyo
Japan

Facundo Sepulveda

University of Santiago, Chile ( email )

Santiago
Chile

HOME PAGE: http://www.fsp.cl

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