Assessing the double dividend of a third-generation environmental tax reform with resource substitution

Susana Silva (), Isabel Soares and Oscar Afonso
Additional contact information
Susana Silva: Faculdade de Economia da Universidade Do Porto (FEP) and CEFUP, R. Roberto Frias
Isabel Soares: Faculdade de Economia da Universidade Do Porto (FEP) and CEFUP, R. Roberto Frias
Oscar Afonso: FEP and CEFUP. R. Roberto Frias

Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, 2021, vol. 23, issue 10, No 40, 15145-15156

Abstract: Abstract Taxes often face public opposition, which hinders their implementation since people envision them as costs without a return. Taxes on emissions are one of the most common instruments to tackle environmental problems. If their revenues are used to subsidize renewables, and a double dividend is achieved, public opposition may decrease. Focusing solely on total emissions and total output to measure the first and the second dividend of a combination of policies may be misleading. Indeed, total emissions may increase with economic growth, but relative emissions may decrease, indicating the generation sector’s desired decarbonization. Hence, a wider group of indicators can provide a better insight into the desirability of environmental policies. Our work discusses alternative indicators for the first and the second dividends in the context of a third-generation Environmental Tax Reform (ETR) where emissions tax revenues are used to finance renewable energy sources. The results of our simulation model highlight the relevance of the choice of the indicators for each dividend. Considering alternative indicators provides a better insight into policy impacts. If emissions per output indicate the environmental dividend and consumers’ utility/welfare indicates the economic dividend, the ETR always provides a double dividend. If we choose the traditional indicators, the ETR may not seem particularly interesting. However, with alternative indicators, which still reflect crucial aspects of the environment-economy relationship, the ETR is desirable. Hence, we argue that the attractiveness of a certain ETR and its double dividend should be evaluated under a broader range of indicators.

Keywords: Environmental tax reform; Double dividend; Resource substitution; Pollution; Economy; Welfare (search for similar items in EconPapers)
JEL-codes: O13 Q20 Q58 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10668-021-01290-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:endesu:v:23:y:2021:i:10:d:10.1007_s10668-021-01290-7

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/10668

DOI: 10.1007/s10668-021-01290-7

Access Statistics for this article

Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development is currently edited by Luc Hens

More articles in Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().