It is sometimes argued that by using the revenues from environmental taxes to reduce distortionary taxes on labor, governments can reap a ‘double dividend’, namely, not only an improvement in environmental quality, but also a reduction in the efficiency costs associated with raising public revenue. By employing a general equilibrium model, this paper finds that, contrary to common wisdom, environmental taxes typically render the overall tax system a less efficient instrument to finance public spending. Furthermore, high estimates for the marginal efficiency costs of existing taxes weaken, rather than strengthen, the case for environmental taxes.

Double dividend, Environmental tax, Excess burden, Second best
Externalities; Redistributive Effects; Environmental Taxes and Subsidies (jel H23), Government Policy (jel Q28)
hdl.handle.net/1765/1948
European Journal of Political Economy
Erasmus School of Economics

de Mooij, R.A, & Bovenberg, A.L. (1994). Environmental taxes and labor-market distortions. European Journal of Political Economy, 655–683. Retrieved from http://hdl.handle.net/1765/1948