Tax Deductions, Environmental Policy, and the "Double Dividend" Hypothesis

Recent studies find that environmental tax swaps typically exacerbate the costs of the tax system and therefore do not produce a "double dividend". We extend previous models by incorporating tax-favored consumption goods (e.g. housing, medical care). The efficiency gains from recycling environmental tax revenues are therefore larger because pre-existing income taxes distort both consumption decisions and factor markets. In this setting a revenue-neutral emissions tax (or auctioned permits) produces a double dividend. Moreover, the overall costs of environmental tax swaps are negative, for modest emissions reductions. The efficiency gains from emissions taxes over grandfathered permits are also much larger than previously recognized.

[1]  Arnold C. Harberger.  Taxation and Welfare , 1974 .

[2]  Harvey S. Rosen,et al.  Housing decisions and the U.S. income tax: An econometric analysis , 1979 .

[3]  A. Deaton.  Optimal Taxes and the Structure of Preferences , 1981 .

[4]  H. Rosen.  Housing Subsidies: Effects on Housing Decisions, Efficiency, and Equity , 1983 .

[5]  Wallace E. Oates,et al.  Effluent fees and market structure , 1984 .

[6]  M. Pauly.  Taxation, health insurance, and market failure in the medical economy. , 1986, Journal of economic literature.

[7]  Edgar K. Browning.  On the Marginal Welfare Cost of Taxation , 1987 .

[8]  R. Lucas,et al.  SUPPLY-SIDE ECONOMICS: AN ANALYTICAL REVIEW , 1990 .

[9]  L. Goulder.  Environmental taxation and the double dividend: A reader's guide , 1994 .

[10]  Environmental Taxation and the "Double Dividend:" a Reader's Guide , 1994 .

[11]  L. Goulder,et al.  Optimal Environmental Taxation in the Presence of Other Taxes: General Equilibrium Analyses , 1994 .

[12]  R. Mooij,et al.  Environmental Levies and Distortionary Taxation. , 1994 .

[13]  L. Goulder,et al.  Effects of Carbon Taxes in an Economy with Prior Tax Distortions: An Intertemporal General Equilibrium Analysis , 1995 .

[14]  W. Oates.  Green Taxes: Can We Protect the Environment and Improve the Tax System at the Same Time?* , 1995 .

[15]  Ian W. H. Parry,et al.  Pollution Taxes and Revenue Recycling , 1995 .

[16]  Arthur Snow,et al.  The marginal welfare cost of public funds: Theory and estimates , 1996 .

[17]  L. Goulder,et al.  Revenue-Raising vs. Other Approaches to Environmental Protection: The Critical Significance of Pre-Existing Tax Distortions , 1996 .

[18]  L. Goulder,et al.  When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets , 1996 .

[19]  M. Feldstein,et al.  HOW BIG SHOULD GOVERNMENT BE? , 1996, National Tax Journal.

[20]  William A. Pizer,et al.  Prices vs. Quantities Revisited: The Case of Climate Change , 1997 .

[21]  E. Mansur,et al.  The Costs and Benefits of Reducing Acid Rain , 1997 .

[22]  Ian W. H. Parry,et al.  Environmental taxes and quotas in the presence of distorting taxes in factor markets , 1997 .

[23]  Alan B. Krueger,et al.  Economists' Views about Parameters, Values, and Policies: Survey Results in Labor and Public Economics , 1998 .

[24]  L. Goulder.  Environmental Policy Making in a Second-Best Setting , 1998 .

[25]  A. Bovenberg,et al.  Consequences of Environmental Tax Reform for Unemployment and Welfare , 1998 .

[26]  I. Parry.  The Double Dividend: When You Get it and When You Don’t , 1998 .

[27]  M. Feldstein.  Tax Avoidance and the Deadweight Loss of the Income Tax , 1995, Review of Economics and Statistics.

[28]  I. Parry.  Tax Deductions, Consumption Distortions, and the Marginal Excess Burden of Taxation , 1999 .

[29]  W. Oates,et al.  Policy Analysis in the Presence of Distorting Taxes , 2000 .

[30]  Craig Brett,et al.  Political uncertainty and the earmarking of environmental taxes , 2000 .