Growth Effects of a Revenue Neutral Environmental Tax Reform

Frank Hettich

No 97-18, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

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.

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Persistent link: https://EconPapers.repec.org/RePEc:kud:epruwp:97-18

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