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Growth effects of a revenue neutral environmental tax reform

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  • Hettich, Frank

Abstract

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

Suggested Citation

  • Hettich, Frank, 1997. "Growth effects of a revenue neutral environmental tax reform," Discussion Papers, Series II 351, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    • Handle: RePEc:zbw:kondp2:351
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    References listed on IDEAS

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    1. Gian Maria Milesi-Ferrett & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," NBER Working Papers 5317, National Bureau of Economic Research, Inc.
    2. Hettich, Frank, 1995. "The consequences of environmental policy for economic growth: A numerical simulation of the transition path," Discussion Papers, Series II 266, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
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    More about this item

    Keywords

    Endogenous growth; environmental externalities; environmental tax reform; elastic labour supply; optimal taxation;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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