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Environmental tax reform and endogenous growth

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  • Bovenberg, A.L.

    (Tilburg University, Center For Economic Research)

  • de Mooij, R.A.

Abstract

This paper explores the effects of an environmental tax reform on pollution, economic growth and welfare in an endogenous growth model with pre-existing tax distortions. We find that a shift in the tax mix away from output towards pollution may raise economic growth through two channels. The first channel is an environmental production externality, which determines the positive effect of lower aggregate pollution on the productivity of capital. The second channel is a shift in the tax burden away from the net return on investment towards profits. The paper also shows that, if tax shifting towards profits is large and environmental amenities are unimportant, the optimal tax on pollution may exceed its Pigovian level.
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Suggested Citation

  • Bovenberg, A.L. & de Mooij, R.A., 1994. "Environmental tax reform and endogenous growth," Discussion Paper 1994-98, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:2553aace-59b1-4ef6-b62a-9bf85c176f67
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    References listed on IDEAS

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