The Feasibility of the Double‐Dividend Hypothesis in a Democratic Economy
Scandinavian Journal of Economics, 2018, vol. 120, issue 1, 211-241
The two dividends in the double‐dividend hypothesis are assumed to be independent. This assumption can be misleading when it comes to formulating policy. I construct a model where the pollution tax rate is voted for by heterogeneous people. In addition to the revenue‐recycling effect, the equilibrium pollution tax rate depends on two opposite forces: the tax‐cutting effect and the profit effect. The two forces show that an instrument that exploits a greater revenue‐recycling effect can cause a more severe environmental deterioration, thereby resulting in the infeasibility of the hypothesis. The introduction of the interdependence between the two dividends can also mean that non‐revenue‐raising instruments are more efficient than revenue‐raising instruments.
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Persistent link: https://EconPapers.repec.org/RePEc:bla:scandj:v:120:y:2018:i:1:p:211-241
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Scandinavian Journal of Economics is currently edited by Richard Friberg, Matti Liski and Kjetil Storesletten
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