Working Paper: CEPR ID: DP2117
Authors: Francesco Bosello; Carlo Carraro; Marzio Galeotti
Abstract: This paper reviews recent developments in the study of the so-called "double dividend", i.e. the possibility of improving the environment and, at the same time, reducing the distortions of the tax system through revenue-neutral green taxes. Recent modeling advances are considered at both the theoretical and the empirical levels. In particular, we note that the most significant theoretical advances have been made in the direction of allowing for imperfectly competitive markets, especially the market for labor. At the same time, we argue that empirical work, particularly on the "employment double dividend", is still relatively scant and that much more needs to be done both in the direction of more realistic empirical models and of an extended sensitivity analysis of the main findings.
Keywords: double dividend; environmental fiscal reform; environmental modelling
JEL Codes: H00; H2; H3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shifting the tax burden from labor to pollution (H23) | increase in employment (J68) |
| introduction of a green tax (H23) | reduce the tax on labor (H31) |
| reduce the tax on labor (H31) | incentivizing employers to hire more labor-intensive production methods (J68) |
| revenue-recycling effect > tax interaction effect (H23) | increase in overall welfare (D69) |
| tax interaction effect > revenue-recycling effect (H23) | decrease in overall welfare (D69) |
| returning environmental tax revenues by reducing distortionary taxes (H23) | preferable to lump-sum transfers (D15) |
| high unemployment rates in Europe (F66) | strong form of the double dividend unlikely to materialize (G19) |
| wage rigidity and market imperfections (J31) | significant roles in determining outcomes (I24) |