A Note on Weak Double Dividends

Joint Program Reprint • Journal Article
A Note on Weak Double Dividends
Metcalf, G., M. Babiker and J. Reilly (2004)
Topics in Economic Analysis & Policy, 4(1): Article 2

Reprint 2004-3 [Read Full Article]

Abstract/Summary:

 A weak double-dividend is the proposition that the welfare improvement from a green tax reform, where the revenue from an environmental tax is used to reduce other tax rates, must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion. We show in this note that a weak double-dividend need not hold in a world with multiple distortions. In an economy with multiple distortions one must choose carefully which tax rates to reduce, or one can do worse than a lump sum redistribution of the environmental tax revenues.

Copyright ©1999-2008 The Berkeley Electronic Press

Citation:

Metcalf, G., M. Babiker and J. Reilly (2004): A Note on Weak Double Dividends. Topics in Economic Analysis & Policy, 4(1): Article 2 (http://www.bepress.com/bejeap/topics/vol4/iss1/art2/)
  • Joint Program Reprint
  • Journal Article
A Note on Weak Double Dividends

Metcalf, G., M. Babiker and J. Reilly

Abstract/Summary: 

 A weak double-dividend is the proposition that the welfare improvement from a green tax reform, where the revenue from an environmental tax is used to reduce other tax rates, must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion. We show in this note that a weak double-dividend need not hold in a world with multiple distortions. In an economy with multiple distortions one must choose carefully which tax rates to reduce, or one can do worse than a lump sum redistribution of the environmental tax revenues.

Copyright ©1999-2008 The Berkeley Electronic Press