Environmental Tax Reform under Debt Constraint

Mouez Fodha, Thomas Seegmuller and Hiroaki Yamagami

Annals of Economics and Statistics, 2018, issue 129, 33-52

Abstract: This article analyzes the impacts of Environmental Tax Reform (ETR) when the government is constrained not to increase the public debt-to-output ratio. We consider an overlapping generations model with pollution. Public spending for pollution abatement are financed by tax revenues and public debt. We show that keeping constant the public debt-output ratio is not an obstacle to attain a double dividend, i.e. an increase of both (i) environmental quality and (ii) aggregate consumption. First, if the capital stock is low and the pollution abatement is large enough, a successful ETR consists in a rise of the environmental tax, compensated by a decrease of the income tax. Secondly, we show that the environmental tax revenues may help reduce the public debt-output ratio. We give conditions (on the initial level of the environmental tax and the debt-output ratio) such that an increase of the environmental tax, budget-balanced by a decrease of the debt-output ratio may also achieve a double dividend. We conclude that public debt crisis should not compromise ETR, instead, environmental tax revenues could be part of the solution.

Keywords: Environmental Tax Reform; Debt; Public Emission Abatement; Double Dividend; Overlapping Generations Model (search for similar items in EconPapers)
JEL-codes: H23 H63 Q5 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Environmental Tax Reform under Debt Constraint (2018)
Working Paper: Environmental Tax Reform under Debt Constraint (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:adr:anecst:y:2018:i:129:p:33-52

DOI: 10.15609/annaeconstat2009.129.0033

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