Environmental tax reform and endogenous growth
January 1997
Article
pp 207-237.
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This paper explores how an environmental tax reform impacts pollution, economic growth and welfare in an endogenous growth model with pre-existing tax distortions. We find that a shift in the tax mix away from output taxes towards pollution taxes may raise economic growth through two channels. The first channel is an environmental production externality, which determines the positive effect of lower aggregate pollution on the productivity of capital. The second channel is a shift in the tax burden away from the net return on investment towards profits. The paper also shows that the optimal tax on pollution may exceed its Pigovian level if tax-shifting towards profits is large and production externalities are important.
Keywords
Classifications using
Journal of Economic Literature (JEL) Classification System
- H23 : Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- O41 : One, Two, and Multisector Growth Models
- Q28 : Government Policy
Automatically Extracted Terms
- pollution
- growth
- production
- pollution tax
- effect
- pollution taxes
- capital
- substitution
- welfare
- bovenberg
- output
- input
- mooij / journal
- journal
- level
- return
- abatement
- economic
- model
- profit
