Water Taxation and the Double Dividend Hypothesis

Nichola Kilimani ()
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Nichola Kilimani: Department of Economics, University of Pretoria

No 201451, Working Papers from University of Pretoria, Department of Economics

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.

Keywords: Environmental Taxation; Revenue recycling; Double dividend; Economic growth (search for similar items in EconPapers)
JEL-codes: C68 E62 H23 Q52 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2014-10
New Economics Papers: this item is included in nep-env, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201451

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