Environmental taxes and productivity: Lessons from Canadian manufacturing

Akio Yamazaki

Journal of Public Economics, 2022, vol. 205, issue C

Abstract: This paper investigates how environmental taxes affect manufacturing productivity by examining British Columbia’s revenue-neutral carbon tax. I develop a new hypothesis, the “Productivity Dividend Hypothesis,” to show that environmental taxes can positively affect productivity by recycling tax revenues to reduce corporate income taxes. This revenue-recycling increases investment and could raise productivity more than environmental taxes lower productivity by diverting resources from production. I evaluate this hypothesis using detailed confidential plant-level data. I find that the carbon tax lowers productivity, although this is offset to some extent by the revenue-recycling. For some plants, the policy generates a net gain in productivity.

Keywords: Environmental tax; Revenue-recycling; Manufacturing; Productivity (search for similar items in EconPapers)
JEL-codes: D22 H23 L6 Q5 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (16)

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Working Paper: Environmental Taxes and Productivity: Lessons from Canadian Manufacturing (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:205:y:2022:i:c:s0047272721001961

DOI: 10.1016/j.jpubeco.2021.104560

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