Uncertainty and the double dividend hypothesis

Eftichios S. Sartzetakis and Panagiotis D. Tsigaris

Environment and Development Economics, 2009, vol. 14, issue 05, pages 565-585

Abstract: This paper examines the double dividend hypothesis in the presence of labour income uncertainty. Empirical evidence shows that uncertainty over labour income is particularly significant in developing, while not negligible in developed countries. Under uncertainty, and assuming incomplete capital markets, the tax system plays a role in providing social insurance, and a green tax reform influences its effectiveness. We show that the increase in environmental tax reduces consumption risk, while the balanced budget decrease in labour income tax increases income risk. We find that the total welfare effect of a green tax reform differs substantially from the case of certainty. The critical parameters determining the existence of a second dividend are the lump-sum transfers, the relative substitutability of the two goods for leisure, and the initial tax rates relative to their optimal that determine also the response of labour supply to a change in the tax mix.

Date: 2009

Downloads: (external link)
http://journals.cambridge.org/abstract_S1355770X08005147 link to article abstract page (text/html)

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: http://EconPapers.repec.org/RePEc:cup:endeec:v:14:y:2009:i:05:p:565-585_00

Access Statistics for this article

More articles in Environment and Development Economics from Cambridge University Press
Address: The Edinburgh Building, Shaftesbury Road, Cambridge CB2 2RU UK
Series data maintained by Mike Eden ().