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Environmental Taxes and Productivity: Lessons from Canadian Manufacturing

Akio Yamazaki ()

No 19-32, GRIPS Discussion Papers from National Graduate Institute for Policy Studies

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.

Pages: 49 pages
Date: 2020-02
New Economics Papers: this item is included in nep-eff, nep-ene, nep-env and nep-pbe
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