IDEAS home Printed from https://ideas.repec.org/p/pre/wpaper/201451.html
   My bibliography  Save this paper

Water Taxation and the Double Dividend Hypothesis

Author

Listed:
  • Nicholas Kilimani

    (Department of Economics, University of Pretoria)

Abstract

The double dividend hypothesis contends that environmental taxes have the potential to yield multiple benefits for the economy. However, empirical evidence of the potential impacts of environmental taxation in developing countries is still limited. This paper seeks to contribute to the literature by exploring the impact of a water tax in a developing country context, with Uganda as a case study. Policy makers in Uganda are exploring ways of raising revenue by taxing environmental goods such as water. Whereas their primary focus is to raise revenue, we demonstrate how taxes on environmental goods can yield other benefits beyond addressing a country’s fiscal needs. This study employs a computable general equilibrium model to shed light on the impact of a water tax policy when a tax is accompanied by a recycling scheme of the same magnitude. We seek to establish whether taxation and recycling can induce more growth, employment and industry output. The results show that a mechanism which leaves a neutral fiscal balance yields dividends for the economy. In other words, whatever the degree of regressivity resulting from the environmental tax, it is possible to design a recycling scheme that renders the tax policy to be beneficial to the economy.

Suggested Citation

  • Nicholas Kilimani, 2014. "Water Taxation and the Double Dividend Hypothesis," Working Papers 201451, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201451
    as

    Download full text from publisher

    File URL: http://www.up.ac.za/media/shared/61/WP/wp_2014_51.zp39459.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hertel, Thomas & Hummels, David & Ivanic, Maros & Keeney, Roman, 2007. "How confident can we be of CGE-based assessments of Free Trade Agreements?," Economic Modelling, Elsevier, vol. 24(4), pages 611-635, July.
    2. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-1089, September.
    3. Goodman, D. Jay, 2000. "More Reservoirs Or Transfers? A Computable General Equilibrium Analysis Of Projected Water Shortages In The Arkansas River Basin," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(2), pages 1-16, December.
    4. Jorgenson, Dale W. & Wilcoxen, Peter J., 1993. "Reducing US carbon emissions: an econometric general equilibrium assessment," Resource and Energy Economics, Elsevier, vol. 15(1), pages 7-25, March.
    5. Calzadilla, Alvaro & Rehdanz, Katrin & Tol, Richard S.J., 2008. "Water scarcity and the impact of improved irrigation management: A CGE analysis," Conference papers 331788, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Diao, Xinshen & Roe, Terry, 2003. "Can a water market avert the "double-whammy" of trade reform and lead to a "win-win" outcome?," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 708-723, May.
    7. Anne-Kathrin Faust & Camille Gonseth & Marc Vielle, 2012. "The economic impact of climate driven changes in water availability in Switzerland," EcoMod2012 4177, EcoMod.
    8. Brouwer, Roy & Hofkes, Marjan & Linderhof, Vincent, 2008. "General equilibrium modelling of the direct and indirect economic impacts of water quality improvements in the Netherlands at national and river basin scale," Ecological Economics, Elsevier, vol. 66(1), pages 127-140, May.
    9. Arief Anshory Yusuf & Budy P. Resosudarmo, 2007. "On the Distributional Effect of Carbon Tax in Developing Countries: The Case of Indonesia," Working Papers in Economics and Development Studies (WoPEDS) 200705, Department of Economics, Padjadjaran University, revised Aug 2007.
    10. Perry, C. J. & Rock, M. & Seckler, D., 1997. "Water as an economic good: a solution, or a problem ?," IWMI Research Reports H021492, International Water Management Institute.
    11. Paul Ekins & Philip Summerton & Chris Thoung & Daniel Lee, 2011. "A Major Environmental Tax Reform for the UK: Results for the Economy, Employment and the Environment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 50(3), pages 447-474, November.
    12. David Hensher & Nina Shore & Kenneth Train, 2005. "Households’ Willingness to Pay for Water Service Attributes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 32(4), pages 509-531, December.
    13. repec:bla:jecsur:v:15:y:2001:i:3:p:325-76 is not listed on IDEAS
    14. Alvaro Calzadilla & Katrin Rehdanz & Richard S.J. Tol, 2008. "The Eonomic Impact Of More Sustainable Water Use In Agriculture: A Computable General Equilibrium Analysis," Working Papers FNU-169, Research unit Sustainability and Global Change, Hamburg University, revised Dec 2008.
    15. Glyn Wittwer, 2011. "Confusing Policy and Catastrophe: Buybacks and Drought in the Murray–Darling Basin," Economic Papers, The Economic Society of Australia, vol. 30(3), pages 289-295, September.
    16. repec:idq:ictduk:2313 is not listed on IDEAS
    17. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, October.
    18. A. Lans Bovenberg & Frederick van der Ploeg, 2002. "Tax Reform, Structural Unemployment and the Environment," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 21, pages 379-396, Edward Elgar Publishing.
    19. Chiroleu-Assouline, Mireille & Fodha, Mouez, 2006. "Double dividend hypothesis, golden rule and welfare distribution," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 323-335, May.
    20. Mireille Chiroleu-Assouline & Mouez Fodha, 2011. "Environmental Tax and the Distribution of Income among Heterogeneous Workers," Annals of Economics and Statistics, GENES, issue 103-104, pages 71-92.
    21. Sebastian Galiani & Paul Gertler & Ernesto Schargrodsky, 2005. "Water for Life: The Impact of the Privatization of Water Services on Child Mortality," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 83-120, February.
    22. Decaluwe, B. & Patry, A. & Savard, L., 1999. "`When Water Is No Longer Heaven Sent: Comparative Pricing Analysis in an AGE Model," Papers 9905, Laval - Recherche en Politique Economique.
    23. Delgado, Christopher L. & Hopkins, Jane & Kelly , Valerie & Hazell, P. B. R. & McKenna, Anna A. & Gruhn, Peter & Hojjati, Behjat & Sil, Jayashree & Courbois, Claude, 1998. "Agricultural growth linkages in Sub-Saharan Africa:," Research reports 107, International Food Policy Research Institute (IFPRI).
    24. Ole Boysen, 2016. "Food Demand Characteristics in Uganda: Estimation and Policy Relevance," South African Journal of Economics, Economic Society of South Africa, vol. 84(2), pages 260-293, June.
    25. Baisa, Brian & Davis, Lucas W. & Salant, Stephen W. & Wilcox, William, 2010. "The welfare costs of unreliable water service," Journal of Development Economics, Elsevier, vol. 92(1), pages 1-12, May.
    26. Lawrence H. Goulder & Ian W.H. Parry & Dallas Burtraw, 2002. "Revenue-Raising versus Other Approaches to Environmental Protection: The Critical Significance of Preexisting Tax Distortions," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 24, pages 447-470, Edward Elgar Publishing.
    27. Sartzetakis, Eftichios S. & Tsigaris, Panagiotis D., 2009. "Uncertainty and the double dividend hypothesis," Environment and Development Economics, Cambridge University Press, vol. 14(5), pages 565-585, October.
    28. Rong Zhou & Kathleen Segerson, 2012. "Are Green Taxes a Good Way to Help Solve State Budget Deficits?," Sustainability, MDPI, vol. 4(6), pages 1-25, June.
    29. Anthony Letsoalo & James Blignaut & Theuns de Wet & Martin de Wit & Sebastiaan Hess & Richard S.J. Tol & Jan van Heerden, 2005. "Triple Dividends Of Water Consumption Charges In South Africa," Working Papers FNU-62, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2005.
    30. Pulido-Velazquez, Manuel & Andreu, Joaqui­n & Sahuquillo, Andrés & Pulido-Velazquez, David, 2008. "Hydro-economic river basin modelling: The application of a holistic surface-groundwater model to assess opportunity costs of water use in Spain," Ecological Economics, Elsevier, vol. 66(1), pages 51-65, May.
    31. de Fraiture, Charlotte & Cai, X & Amarasinghe, Upali & Rosegrant, M. & Molden, David, 2004. "Does international cereal trade save water?: the impact of virtual water trade on global water use," IWMI Research Reports H035342, International Water Management Institute.
    32. Dudu, Hasan & Chumi, Sinqobile, 2008. "Economics of irrigation water management : a literature survey with focus on partial and general equilibrium models," Policy Research Working Paper Series 4556, The World Bank.
    33. Ruud de Mooij & A. Bovenberg, 1998. "Environmental Taxes, International Capital Mobility and Inefficient Tax Systems: Tax Burden vs. Tax Shifting," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(1), pages 7-39, February.
    34. Oecd, 2009. "Climate Change and Africa," OECD Journal: General Papers, OECD Publishing, vol. 2009(1), pages 5-35.
    35. Dinar, Ariel & Yaron, Dan, 1992. "Adoption and abandonment of irrigation technologies," Agricultural Economics, Blackwell, vol. 6(4), pages 315-332, April.
    36. Patuelli, Roberto & Nijkamp, Peter & Pels, Eric, 2005. "Environmental tax reform and the double dividend: A meta-analytical performance assessment," Ecological Economics, Elsevier, vol. 55(4), pages 564-583, December.
    37. Berrittella, Maria & Rehdanz, Katrin & Roson, Roberto & Tol, Richard S.J., 2007. "The Economic Impact of Water Taxes: A Computable General Equilibrium Analysis with an International Data Set," Conference papers 331655, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    38. Juana, James S. & Mabugu, Ramos E., 2005. "Assessment of smallholder's agriculture's contribution to the economy of Zimbabwe: A social accounting matrix multiplier analysis," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 44(3), pages 1-19, September.
    39. Maria Berrittella & Katrin Rehdanz & Arjen Y. Hoekstra & Roberto Roson & Richard S.J. Tol, 2006. "The Economic Impact Of Restricted Water Supply: A Computable General Equilibrium Analysis," Working Papers FNU-93, Research unit Sustainability and Global Change, Hamburg University, revised Jul 2006.
    40. Bento, Antonio M. & Jacobsen, Mark, 2007. "Ricardian rents, environmental policy and the `double-dividend' hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 17-31, January.
    41. Lawrence H. Goulder, 1992. "Do the Costs of a Carbon Tax Vanish When Interactions With Other Taxes are Accounted For?," NBER Working Papers 4061, National Bureau of Economic Research, Inc.
    42. Lee, Dwight R. & Misiolek, Walter S., 1986. "Substituting pollution taxation for general taxation: Some implications for efficiency in pollutions taxation," Journal of Environmental Economics and Management, Elsevier, vol. 13(4), pages 338-347, December.
    43. Terkla, David, 1984. "The efficiency value of effluent tax revenues," Journal of Environmental Economics and Management, Elsevier, vol. 11(2), pages 107-123, June.
    44. Bovenberg, A. Lans & Goulder, Lawrence H., 1997. "Costs of Environmentally Motivated Taxes in the Presence of Other Taxes: General Equilibrium Analyses," National Tax Journal, National Tax Association;National Tax Journal, vol. 50(1), pages 59-88, March.
    45. de Fraiture, Charlotte & Cai, Ximing & Amarasinghe, Upali A. & Rosegrant, Mark W. & Molden, David J., 2004. "Does international cereal trade save water? The impact of virtual water trade on global water use," IWMI Research Reports 92832, International Water Management Institute.
    46. Bosquet, Benoit, 2000. "Environmental tax reform: does it work? A survey of the empirical evidence," Ecological Economics, Elsevier, vol. 34(1), pages 19-32, July.
    47. Mark Horridge, 2000. "ORANI-G: A General Equilibrium Model of the Australian Economy," Centre of Policy Studies/IMPACT Centre Working Papers op-93, Victoria University, Centre of Policy Studies/IMPACT Centre.
    48. Bautista, Romeo M. & Thomas, Marcelle & Muir-Leresche, Kay & Lofgren, Hans, 2002. "Macroeconomic policy reforms and agriculture: towards equitable growth in Zimbabwe," Research reports 128, International Food Policy Research Institute (IFPRI).
    49. Shamim A. Sahibzada, 2002. "Pricing Irrigation Water in Pakistan: An Evaluation of Available Options," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(3), pages 209-241.
    50. Bovenberg, A. Lans & Goulder, Lawrence H., 1997. "Costs of Environmentally Motivated Taxes in the Presence of Other Taxes: General Equilibrium Analyses," National Tax Journal, National Tax Association, vol. 50(1), pages 59-88, March.
    51. Pearce, David W, 1991. "The Role of Carbon Taxes in Adjusting to Global Warming," Economic Journal, Royal Economic Society, vol. 101(407), pages 938-948, July.
    52. Ariel Dinar & Dan Yaron, 1992. "Adoption and abandonment of irrigation technologies," Agricultural Economics, International Association of Agricultural Economists, vol. 6(4), pages 315-332, April.
    53. van Heerden, Jan H. & Blignaut, James & Horridge, Mark, 2008. "Integrated water and economic modelling of the impacts of water market instruments on the South African economy," Ecological Economics, Elsevier, vol. 66(1), pages 105-116, May.
    54. Sheila M. Olmstead, 2010. "The Economics of Water Quality," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 4(1), pages 44-62, Winter.
    55. Perry, Christopher J. & Rock, Michael & Seckler, David, 1997. "Water as an economic good: a solution, or a problem?," IWMI Research Reports 61113, International Water Management Institute.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maruf Rahman Maxim & Kerstin Zander, 2019. "Can a Green Tax Reform Entail Employment Double Dividend in European and non-European Countries? A Survey of the Empirical Evidence," International Journal of Energy Economics and Policy, Econjournals, vol. 9(3), pages 218-228.
    2. Maruf Rahman Maxim, 2020. "Environmental fiscal reform and the possibility of triple dividend in European and non-European countries: evidence from a meta-regression analysis," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(4), pages 633-656, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Freire-González, Jaume, 2018. "Environmental taxation and the double dividend hypothesis in CGE modelling literature: A critical review," Journal of Policy Modeling, Elsevier, vol. 40(1), pages 194-223.
    2. Anthony Letsoalo & James Blignaut & Theuns de Wet & Martin de Wit & Sebastiaan Hess & Richard S.J. Tol & Jan van Heerden, 2005. "Triple Dividends Of Water Consumption Charges In South Africa," Working Papers FNU-62, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2005.
    3. Alvaro Calzadilla & Katrin Rehdanz & Richard S.J. Tol, 2008. "The Eonomic Impact Of More Sustainable Water Use In Agriculture: A Computable General Equilibrium Analysis," Working Papers FNU-169, Research unit Sustainability and Global Change, Hamburg University, revised Dec 2008.
    4. Calzadilla, Alvaro & Rehdanz, Katrin & Tol, Richard S.J., 2008. "Water scarcity and the impact of improved irrigation management: A CGE analysis," Conference papers 331788, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. Maria Berrittella & Katrin Rehdanz & Richard S.J. Tol, 2006. "The Economic Impact of the South-North Water Transfer Project in China: A Computable General Equilibrium Analysis," Working Papers 2006.154, Fondazione Eni Enrico Mattei.
    6. Maria Berrittella & Katrin Rehdanz & Roberto Roson & Richard S.J. Tol, 2006. "The Economic Impact Of Water Pricing: A Computable General Equilibrium Analysis," Working Papers FNU-96, Research unit Sustainability and Global Change, Hamburg University, revised Jan 2006.
    7. Chung-Fu Lai, 2016. "Examining the Double Dividend Effect of Energy Tax with the Overlapping Generations Model," International Journal of Energy Economics and Policy, Econjournals, vol. 6(1), pages 53-57.
    8. Berrittella, Maria & Rehdanz, Katrin & Roson, Roberto & Tol, Richard S.J., 2007. "The Economic Impact of Water Taxes: A Computable General Equilibrium Analysis with an International Data Set," Conference papers 331655, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. : Eduardo L. Giménez (a) & Miguel Rodríguez, "undated". "Pigou’S Dividend Versus Ramsey’S Dividend In The Double Dividend Literature," Working Papers 2-06 Classification-JEL :, Instituto de Estudios Fiscales.
    10. Maria Berrittella & Katrin Rehdanz & Arjen Y. Hoekstra & Roberto Roson & Richard S.J. Tol, 2006. "The Economic Impact Of Restricted Water Supply: A Computable General Equilibrium Analysis," Working Papers FNU-93, Research unit Sustainability and Global Change, Hamburg University, revised Jul 2006.
    11. Rodríguez, Miguel & Robaina, Margarita & Teotónio, Carla, 2019. "Sectoral effects of a Green Tax Reform in Portugal," Renewable and Sustainable Energy Reviews, Elsevier, vol. 104(C), pages 408-418.
    12. Calzadilla, Alvaro & Rehdanz, Katrin & Tol, Richard S.J., 2011. "The GTAP-W model: Accounting for water use in agriculture," Kiel Working Papers 1745, Kiel Institute for the World Economy (IfW Kiel).
    13. Anne-Kathrin Faust & Camille Gonseth & Marc Vielle, 2012. "The economic impact of climate driven changes in water availability in Switzerland," EcoMod2012 4177, EcoMod.
    14. Maruf Rahman Maxim & Kerstin Zander, 2019. "Can a Green Tax Reform Entail Employment Double Dividend in European and non-European Countries? A Survey of the Empirical Evidence," International Journal of Energy Economics and Policy, Econjournals, vol. 9(3), pages 218-228.
    15. Chen, Shiyi, 2013. "What is the potential impact of a taxation system reform on carbon abatement and industrial growth in China?," Economic Systems, Elsevier, vol. 37(3), pages 369-386.
    16. Rong Zhou & Kathleen Segerson, 2012. "Are Green Taxes a Good Way to Help Solve State Budget Deficits?," Sustainability, MDPI, vol. 4(6), pages 1-25, June.
    17. Ian W. H. Parry, 2003. "Fiscal Interactions and the Case for Carbon Taxes Over Grandfathered Carbon Permits," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(3), pages 385-399.
    18. Dinar, Ariel, 2012. "Economy-wide implications of direct and indirect policy interventions in the water sector: lessons from recent work and future research needs," Policy Research Working Paper Series 6068, The World Bank.
    19. Chokri Thabet, 2014. "Water Policy and Poverty Reduction in Rural Area: A Comparative Economy Wide Analysis for Morocco and Tunisia," Working Papers 860, Economic Research Forum, revised Nov 2014.
    20. Don Fullerton & Gilbert E. Metcalf, 2002. "Environmental Controls, Scarcity Rents, and Pre-existing Distortions," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 26, pages 504-522, Edward Elgar Publishing.

    More about this item

    Keywords

    Environmental Taxation; Revenue recycling; Double dividend; Economic growth;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pre:wpaper:201451. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Rangan Gupta (email available below). General contact details of provider: https://edirc.repec.org/data/decupza.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.