Environmental Tax Reform and Growth: Income Tax Cuts or Profits Tax Reduction

Minoru Nakada

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates how recycling revenues, which are generated by environmental taxes, affect growth through different types of tax cuts. A growth model with creative destruction (Aghion and Howitt Econometrica 60(2):323–351,1992, Aghion and Howitt The economics of growth, 2009) is modified to include the production of final output as a source of pollution. This paper demonstrates that introducing an environmental tax, accompanied by either an income tax cut or a profits tax reduction, increases the output growth rate. The analysis also shows that, if technological change is resulted from deliberate activities of economic agents, the reduction of the profits tax rate for an intermediate monopolist is more growth-enhancing than an income tax cut since a profits tax reduction directly promotes R&D activities.

Keywords: Environmental Policy; Environmental Tax Reform; Endogenous Growth (search for similar items in EconPapers)
JEL-codes: H23 O41 Q58 (search for similar items in EconPapers)
Date: 2010-06
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Journal Article: Environmental Tax Reform and Growth: Income Tax Cuts or Profits Tax Reduction (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:120377

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