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Environmental Tax Reform and Growth: Income Tax Cuts or Profits Tax Reduction

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  • Minoru Nakada

Abstract

This study investigates how recycling revenues, which are generated by environmental taxes, affect growth through different types of tax cuts. A growth model with creative destruction (Aghion and Howitt Econometrica 60(2):323–351,1992, Aghion and Howitt The economics of growth, 2009) is modified to include the production of final output as a source of pollution. This paper demonstrates that introducing an environmental tax, accompanied by either an income tax cut or a profits tax reduction, increases the output growth rate. The analysis also shows that, if technological change is resulted from deliberate activities of economic agents, the reduction of the profits tax rate for an intermediate monopolist is more growth-enhancing than an income tax cut since a profits tax reduction directly promotes R&D activities.
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  • Minoru Nakada, 2010. "Environmental Tax Reform and Growth: Income Tax Cuts or Profits Tax Reduction," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(4), pages 549-565, December.
    • Handle: RePEc:kap:enreec:v:47:y:2010:i:4:p:549-565
    DOI: 10.1007/s10640-010-9392-3
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    3. Oueslati, Walid, 2014. "Environmental tax reform: Short-term versus long-term macroeconomic effects," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 190-201.
    4. Mavi, Can Askan, 2024. "Creative destruction vs destructive destruction: A Schumpeterian approach for adaptation and mitigation," Mathematical Social Sciences, Elsevier, vol. 127(C), pages 36-53.
    5. Zhong, Yuanguang & Yang, Tong & Zillmann, Stefan & Cao, Bin, 2022. "The role of government regulatory policies in financing capital-constrained retailers under competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 157(C).
    6. Walid Oueslati, 2013. "Short and Long-term Effects of Environmental Tax Reform," Working Papers 2013.09, Fondazione Eni Enrico Mattei.
    7. Fei Liu & Ting Nan & Xinliang Wang, 2022. "Causes and Evolution Characteristics of Green Innovation Efficiency Loss: The Perspective of Factor Mismatch under Local Government Competition," Sustainability, MDPI, vol. 14(14), pages 1-29, July.
    8. Can Askan Mavi, 2017. "Creative Destruction vs Destructive Destruction ? : A Schumpeterian Approach for Adaptation and Mitigation," Working Papers halshs-01455297, HAL.
    9. Xiaoxiang Xu & Mingqiu Liao, 2022. "Prediction of China’s Economic Structural Changes under Carbon Emission Constraints: Based on the Linear Programming Input–Output (LP-IO) Model," Sustainability, MDPI, vol. 14(15), pages 1-13, July.
    10. Chu, Hsun & Lai, Ching-chong & Liao, Chih-hsing, 2016. "A Note On Environment-Dependent Time Preferences," Macroeconomic Dynamics, Cambridge University Press, vol. 20(6), pages 1652-1667, September.
    11. Oscar Afonso & Ana Catarina Afonso, 2015. "Endogenous Growth Effects of Environmental Policies," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(5), pages 607-629, December.

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    More about this item

    Keywords

    Environmental policy; Environmental tax reform; Endogenous growth;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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