Green tax reform, endogenous innovation and the growth dividend

Christos Karydas and Lin Zhang

Journal of Environmental Economics and Management, 2019, vol. 97, issue C, 158-181

Abstract: We study theoretically and numerically the effects of an environmental tax reform using endogenous growth theory. In the theoretical segment, mobile labor between manufacturing and R&D activities, and elasticity of substitution between labor and energy in manufacturing lower than unity allow for a growth dividend, even if we consider preexisting tax distortions. The scope for innovation is reduced when we consider direct financial investment in the lab, or elastic labor supply. We then apply the core theoretical model to a real growing economy and find that a boost in long-run economic growth following such a carbon policy is a possible outcome. Redistribution of additional carbon tax revenue by lowering capital taxation performs best in terms of effciency measured by aggregate welfare. In terms of equity among social segments the progressive character of lump-sum redistribution fails when we consider very high emissions reduction targets.

Keywords: Climate Policy; Green Tax Reform; Induced Innovation; Endogenous Growth; Numerical Modelling (search for similar items in EconPapers)
JEL-codes: C63 E62 O44 Q43 Q48 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:97:y:2019:i:c:p:158-181

DOI: 10.1016/j.jeem.2017.09.005

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