Administrative Costs and the "Double Dividend"

Knud Munk

No 00-06, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: The view of economists seems in general to be that a green tax reform is unlikely to be associated with a "double dividend", especially if the policies prior to the reform have been economically rational. However, the results derived in the present paper suggest that this view needs to be qualified. We demonstrate that a green tax reform is likely to be associated with a significant "double dividend" if prior to the changes, which justify the green tax reform, it has been rational for the government to adopt a proportional tax system due to the administrative costs involved in differentiating commodity tax rates, and if the green tax reform stimulates the labour supply and has desirable income distributional effects

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