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Uncertainty and the Double Dividend Hypothesis

Author

Listed:
  • Eftichios Sartzetakis

    (University of Macedonia)

  • Panagiotis D. Tsigaris

    (Thompson Rivers University)

Abstract
This paper examines the double dividend hypothesis in the presence of labour income uncertainty. Empirical evidence shows that uncertainty over labour income is particularly significant in developing, while not negligible in developed countries. Under uncertainty, and assuming incomplete capital markets, the tax system plays a role in providing social insurance and a green tax reform influences its effectiveness. We show that the increase in environmental tax reduces consumption risk while the balanced budget decrease in labour income tax increases income risk. We find that the total welfare effect of a green tax reform differs substantially from the case of certainty. The critical parameters determining the existence of a second dividend are the lump sum transfers, the relative substitutability of the two goods for leisure and the initial tax rates relative to their optimal that determine also the response of labour supply to a change in the tax mix.

Suggested Citation

  • Eftichios Sartzetakis & Panagiotis D. Tsigaris, 2007. "Uncertainty and the Double Dividend Hypothesis," Working Papers 2007.99, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2007.99
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    References listed on IDEAS

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    Cited by:

    1. Alex Bowen, 2012. "�Green� growth, �green� jobs and labour markets," GRI Working Papers 76, Grantham Research Institute on Climate Change and the Environment.
    2. Bowen, Alex, 2012. "'Green'growth,'green'jobs and labor markets," Policy Research Working Paper Series 5990, The World Bank.
    3. Perrings, Charles, 2014. "Environment and development economics 20 years on," Environment and Development Economics, Cambridge University Press, vol. 19(3), pages 333-366, June.
    4. Nicholas Kilimani, 2014. "Water Taxation and the Double Dividend Hypothesis," Working Papers 201451, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Double Dividend Hypothesis; Environmental Taxation; Labor Income Taxation; Uncertainty; Tax Incidence Analysis;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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