A Note on Weak Double Dividends : Topics in Economic Analysis & Policy

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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Zulehner, Christine / Schirle, Tammy


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A Note on Weak Double Dividends

Gilbert E. Metcalf1 / Mustafa H. Babiker2 / John Reilly3

1Tufts University,

2Arab Planning Institute,

3MIT,

Citation Information: Topics in Economic Analysis & Policy. Volume 4, Issue 1, ISSN (Online) 1538-0653, DOI: 10.2202/1538-0653.1275, February 2004

Publication History

Published Online:
2004-02-23

Abstract

A weak double-dividend is the proposition that the welfare improvement from a green tax reform, where the revenue from an environmental tax is used to reduce other tax rates, must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion. We show in this note that a weak double-dividend need not hold in a world with multiple distortions. In an economy with multiple distortions one must choose carefully which tax rates to reduce, or one can do worse than a lump sum redistribution of the environmental tax revenues.

Keywords: environmental tax policy; second-best taxation; general equilibrium analysis

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