Environmental tax reform: Short-term versus long-term macroeconomic effects

Walid Oueslati

Journal of Macroeconomics, 2014, vol. 40, issue C, 190-201

Abstract: This paper examines the macroeconomic effects of environmental tax reform in a growing economy. A model of endogenous growth based on human capital accumulation is used to simulate numerically the growth effects of different environmental tax reforms and calculate their impact on welfare in the short and the long-term. Our results suggest that the magnitude of these effects depends on the type of tax reform and the presence of a convex adjustment cost for investment. Although, the green tax reform that aims to use the revenue from environmental tax in order to reduce tax on wages is always growth improving, its long term welfare effects depend on the capital adjustment cost. Moreover, regardless of the tax reform scenarios, the short-term welfare effect is always negative.

Keywords: Tax reform; Endogenous growth; Human capital; Environmental externality; Transitional dynamics; Welfare cost (search for similar items in EconPapers)
JEL-codes: D62 E62 H22 I21 O41 Q28 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:40:y:2014:i:c:p:190-201

DOI: 10.1016/j.jmacro.2014.02.004

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