Journal
ENERGY POLICY
Volume 39, Issue 7, Pages 4253-4263Publisher
ELSEVIER SCI LTD
DOI: 10.1016/j.enpol.2011.04.041
Keywords
Double dividend; Emissions tax; Dynamic Laffer effects
Funding
- Spanish Ministry of Education [ECO2009-10398]
- Universidad Complutense de Madrid
- BSCH
- Xunta de Galicia [10PXIB300177PR]
- Fundacion Ramon Areces
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In an stylized endogenous growth economy with a negative externality created by CO2 emissions and in which abatement activities are made by private firms, we find a wide range of dynamically feasible green tax reforms yielding the double dividend without any need to assume a complex production structure or tax system, or a variety of externalities in production. As a remarkable finding, we obtain certain scenarios in which increasing the emissions tax up to the Pigouvian level and removing completely the income tax is dynamically feasible and, also, it is the second-best reform. Hence, as a difference to previous literature, in these scenarios the first-best tax mix is implementable, allowing for the elimination of both environmental and non-environmental inefficiencies. Our result arises because of the consideration of public debt issuing and the management of the government budget balance with an intertemporal perspective. The result is obtained for an intermediate range of environmental bearing in preferences, the valid range being contingent on the pre-existing income tax rate. The type of tax reform that we propose could also be implemented for different energy taxes. (C) 2011 Elsevier Ltd. All rights reserved.
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