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Growth effects of a revenue-neutral environmental tax reform

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Abstract

This paper analyzes tax-policy measures within a two-sector endogenously-growing economy with elastic labor supply. Pollution is either modeled as a side product of physical capital used as a production factor in the final-good sector or as a side product of production. The framework allows us to analyze the consequences of isolated tax changes or of a revenue-neutral environmental tax reform for economic growth. Although pollution does not directly affect production processes, it can be shown that a higher pollution tax as well as a revenue-neutral environmental tax reform boost economic growth, whereas a tax on capital, consumption, or labor reduces the long-term growth rate of the economy.

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  1. Frank Hettich

    Present address: University of Konstanz, Box D 133, D-78457, Konstanz, Germany

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    Hettich, F. Growth effects of a revenue-neutral environmental tax reform. Journal of Economics Zeitschrift für Nationalökonomie 67, 287–316 (1998). https://doi.org/10.1007/BF01234647

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    • DOI: https://doi.org/10.1007/BF01234647

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