Growth effects of a revenue neutral environmental tax reform

Frank Hettich

No 351, Discussion Papers, Series II from University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy"

Abstract: This paper analyses tax policy measures within a two sector endogenously growing economy with elastic labour supply. Pollution is modelled as a side product of physical capital stock used as a primary production factor in the final good sector. The framework allows to analyse consequences of isolated tax changes or of a revenue neutral environmental tax reform for economic growth. Although pollution does not affect directly production processes, it can be shown that a higher pollution tax or a revenue neutral environmental tax reform boosts economic growth, whereas a tax on capital, consumption or labour reduces the long term growth rate of the economy.

Keywords: Endogenous growth; environmental externalities; environmental tax reform; elastic labour supply; optimal taxation (search for similar items in EconPapers)
JEL-codes: D62 E62 O41 Q28 (search for similar items in EconPapers)
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kondp2:351

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