FEEM working papers "Note di lavoro" series
2003 .060

The Double Dividend Hypothesis of Environmental Taxes: A Survey

Authors: Ronnie Schöb
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Book
Keywords: Environmental taxation,Double-dividend hypothesis,Full-employment models,Unemployment models,International coordination
JEL n.: H21,H23,J50,Q30
JEL: The International Yearbook Of Environmental And Resource Economics 2005/2006
Pages: pp. 223-279
Date: 2006


This survey reviews the recent literature on the double-dividend hypothesis of environmental taxes and discusses some extensions of the standard model such as the distributional consequences and the importance of the non-separability assumption between consumption goods and environmental quality for the optimal design of environmental policies. Turning to a model with imperfect labour markets we then show under which circumstances environmental taxes on polluting inputs in production and on polluting consumption goods can reap a second dividend in the form of an employment dividend and discuss the welfare implications. Finally, we turn to international aspects of environmental taxation. When environmental problems are tied to the use of exhaustible resources, resource-consuming countries can appropriate resource rents at the cost of resource-owning countries by levying environmental taxes strategically.

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