Double Dividend Hypothesis Research Articles

Revisiting the Double Dividend Hypothesis with the Load Capacity Factor

The aim of the paper is to test the validity of the double dividend hypothesis in the five OECD countries with the highest environmental taxes (Türkiye, Slovenia, Latvia, the Netherlands and Denmark) using panel data analysis. With this motivation, the paper analyses the effects of environmental taxes on the load capacity factor and unemployment through two models for the period 1997-2022. According to the empirical findings, environmental taxes are cointegrated with both the load capacity factor and unemployment. The coefficient results of the first model reveals that environmental taxes positively affect the load capacity factor in Türkiye and Slovenia as well as at the panel level. Environmental taxes cause environmental degradation only in Denmark. In the second model, environmental taxes reduce unemployment in Latvia, the Netherlands, Denmark and at the panel level. In sum, the paper confirms the double dividend hypothesis for the panel.

Fiscal Costs of Climate Policies: Role of Tax, Political, and Behavioural Distortions

Here I review the fiscal costs of carbon pricing and climate policies, paying due attention to second-best as well as first-best polies. This starts with a discussion of when the double dividend hypothesis, i.e. when recycling carbon taxes via lower income taxes boosts employment and lowers the marginal cost of public funds. I propose that recycling carbon tax revenue benefits from considering the income on the whole distribution of households, since this allows one to get a better understanding of the political feasibility of carbon tax reforms. Political feasibility also requires intergenerational and international transfers to ensure all generations and countries benefit from carbon tax reform. The politics of carbon tax reform also requires one to take account of business cycle aspects, heightened salience of carbon taxes, and the propensity of policymakers to procrastinate and prefer subsidies to taxes.

Implication of electricity taxes and levies on sustainable development goals in the European Union

The current high electricity prices in the European Union (EU) are in part due to the high electricity taxes. United Nations’ Sustainable Development Goals (SDGs) Agenda with its global vision of attaining sustainable development especially seeks “to ensure universal access to affordable, reliable and modern energy services” (SDG 7). We investigate the synergy and trade-off effects of electricity taxes on sustainable development goals (SDGs) for the EU. Using panel data and panel vector autoregressive estimation approach, we find that higher household electricity taxes reduce both carbon emission and unemployment. Higher levels of industry electricity taxes, increase responsible production and consumption (SDG12) and reduces unemployment (SDG8). Furthermore, there is evidence for a strong synergy effect between electricity taxes, unemployment and carbon emission but a trade-off between tax and SDG9 (innovation and sustainable infrastructure). The taxes contribute more to the future variation of unemployment and responsible production and consumption in the EU, but these contributions are much larger for the industry as compared to the household sector. Our results confirm the double-dividend hypothesis, which implies that the policymakers can achieve environmental goals with higher electricity taxes, especially on household electricity. In the industrial sector, our findings suggest that there is a need for tax reform, to encourage innovation and adopt production processes that are less polluting to the environment.

탄소세가 GDP, 에너지사용량, 탄소배출량, 고용에 미치는 영향 분석 : 이중배당가설을 중심으로

환경세나 탄소세의 도입이 환경개선(1차 배당효과)뿐만 아니라 경제성장에도 긍정적인 효과(2차 배당효과)를 준다는 이중배당가설에 대한 성립여부는 현재진행형인 중요한 연구주제이다. 이러한 점에서 본 연구에서는 탄소세를 도입 및 시행하고 있는 국가들 중에서 탄소세를 도입한 연도와 탄소세의 수준 그리고 배출권거래제도 병행여부 등을 종합적으로 고려하여 9개국을 선정하여 패널분석을 진행하였다. 추정과정에서는 2차 배당효과 중 ‘강 배당효과’로 알려진 환경세나 탄소세의 도입이 GDP나 고용을 상승시키는지 여부를 중점적으로 살펴보았다. 추정결과, 장기식에서는 1차 배당효과는 성립하였으나 2차 배당효과는 성립하지 않는 것으로 나타났다. 결론적으로 1차 배당효과와 2차 배당효과가 모두 존재하는 이중배당가설은 성립하지 않는 것으로 나타났다.

Analysing the co-benefit of environmental tax amidst clean energy development in Europe's largest agrarian economies

The increasing human activities amidst competition for resources across the globe has made environmental challenges an ongoing classic problem, thus prompting policymakers to continually seek effective solution while ensuring sustainable development. With the wide coverage of the relevance of the double dividend hypothesis in explaining the co-benefit of environmental tax, there is a dearth of evidence in the literature to suggest that environmental tax offers green dividends for both the environment and agricultural practice in the European countries. As such, this study employed the more recent Method of Moments Quantile Regression (MMQR) alongside other approaches for Europe's largest agrarian economies (France, Germany, Italy, and Spain) over the annual period 1995–2020. The investigation affirms the validity of the co-benefit of environmental tax as far as environmental sustainability and value-added to agriculture are concerned in this panel of ‘Big Four’ economies, thus motivating the countries to relentlessly pursue the carbon-neutral 2050 target. Moreover, the study aligns with the expectation that renewable energy utilization and population density are desirable factors for achieving a carbon-neutral target. Lastly, the findings suggest that environmental quality is attainable in the panel, especially as increasing income surpasses a certain threshold, thus validating the environmental Kuznets curve hypothesis. Above all, the findings provide timely policy insight that accommodates both the environmental sustainability and food security framework of the European Union. The policy options relevant in light of the study's conclusions include that the decision makers in the selected agrarian economies should ramp up energy transition opportunities through a resilient environmental tax system that incentives availability of credit and investment financing in the agriculture sector.

Do energy-pollution-resource-transport taxes yield double dividend for Nordic economies?

With the policy performance of the Nordic countries especially from the aspects of energy security, energy equity, and environmental sustainability, this study provides more in-depth on the performance of the countries’ disaggregated environmental taxes. To examine the greenhouse gas emission and energy intensity effects of energy tax, pollution tax, resource tax, and transport tax alongside controlling for the role of employment rate and gross domestic product over the period 1995–2020, empirical tools such as the method of moments quantile regression, short- and long-run cointegration, and Granger causality approaches were utilized. Importantly, there are series of interesting results from this investigation. Firstly, the result posits the feasibility of Green growth in the panel of Nordic countries while a significant and negative nexus between GDP and energy intensity was also established. Secondly, also from the panel result, we found that only energy tax significantly mitigates both emissions and energy intensity across the quantiles while pollution tax and resource tax exacerbate emissions and energy intensity. Thus, for the panel case, only energy tax could validate the double dividend hypothesis. Thirdly, the result revealed that double dividend hypothesis and by large extent co-benefit is achievable with pollution and resource tax policies in Finland but in the short-run. Similarly, pollution, resource, and transport tax policies in Sweden are all desirable for achieving both environmental and economic benefits in the short-run. However, there is no valid evidence to support the validity of double dividend hypothesis in Denmark and Norway. Lastly, we found a one-way Granger causality from GDP, energy tax, resource tax, and transport tax to greenhouse gas emission while a one-way Granger causality also exists from GDP, energy tax, and transport tax to energy intensity. Overall, compelling policy dimensions are inferred from the investigation.

The effects of environmental taxes on environmental pollution and unemployment: A panel co‐integration analysis on the validity of double dividend hypothesis for selected African countries

AbstractIn this study, the validity of the double dividend hypothesis for several African countries (Cameroon, Ivory Coast, Mali, South Africa, and Uganda) is investigated for the period of 1994–2017. The double dividend hypothesis claims that, in addition to reducing environmental pollution, environmental taxes can also increase employment. In this study, the validity of this hypothesis is examined with panel co‐integration and long‐run estimators. According to the findings obtained, environmental taxes increased environmental degradation and unemployment in Cameroon, environmental degradation in the Ivory coast, environmental degradation and employment in Mali, environmental restoration in South Africa and employment in Uganda. When the individual results obtained from the study are evaluated in general, it can be said that the double dividend hypothesis is not valid for African countries. The study proposes that taxation should be used as a financial incentive rather than a command‐and‐control policy to combat unemployment and environmental degradation.

Trade Liberalization, an Employment Double-Dividend Hypothesis, and Welfare with Heterogeneous Firms

Trade Liberalization, an Employment Double-Dividend Hypothesis, and Welfare with Heterogeneous Firms

Global warming and technical change: Multiple steady-states and policy options

We develop an economic growth model that incorporates anthropogenic climate change and a publicly funded research sector that creates new technologies and simultaneously expands the productivities of existing technologies. Greenhouse gas emissions are affected by R&D activities both negatively, through the increase of output from productivity growth, and positively as new technologies are less polluting. We find that there may exist two different steady-states of the economy, depending on the amount of research spending: one with less new technologies being developed and the other with more technologies. Thus, a lock-in effect can arise that, however, can be overcome by raising R&D spending sufficiently such that the steady-state becomes unique. We derive the combinations of fiscal policy instruments for which that can be achieved and we study the implications for the economy and with respect to emissions. In particular, the double dividend hypothesis may hold under some specific conditions.

Economic Effects of a Tax Policy to Reduce Greenhouse-Gas Emissions in Brazil

Brazil has proposed to reduce emissions by 37% below 2005 levels in 2025, and for indicative purposes, to further reduce it by 43% in 2030, following the agreement of COP-21 in Paris. This study seeks to investigate the macroeconomic effects if Brazil adopts a GHG emissions tax to meet the carbon reduction commitment and to simulate the thesis of "double dividend". A neoclassical growth model with the introduction of environment and fiscal policy was used. A tax rate on CO2 emissions of US$ 100.00/tCO2e would be enough to meet Brazil´s target of emission reduction. The double dividend hypothesis was observed in Brazil’s case and the best results occur when capital income tax is reduced.

How do governments actually use environmental taxes?

ABSTRACT This paper empirically examines how governments actually use environmental taxes, by looking to what extent their resort to this type of taxation is consistent with three alternative interpretations of environmental taxes proposed by the welfare economics theoretical literature: the strict and the broad Pigouvian and the double dividend hypotheses. We also extend our analysis to an alternative vision of politics, the Leviathan model, to verify how governments that are imperfectly accountable use environmental taxes. Each theory leads to alternative testable hypotheses, which we verify on a sample that minimizes the analysts’ discretionary evaluations, the EU-28 countries that committed themselves to reducing the greenhouse gas emissions by 2020. The estimates lend support to the strict Pigouvian hypothesis and, to a lesser extent, to a version of the double dividend hypothesis, where personal income taxes are ‘recycled’ by environmental ones. The other interpretations do not appear consistent with the data.

Employment double dividend hypothesis with the presence of a trade union

Trade unions have a long history in countries all over the world and play a crucial role in the wages of employees through the mechanism of wage bargaining. However, this is often ignored in studies on environmental taxation. We consider a differentiated duopoly competing in a Cournot space after the wages of employees are negotiated with a trade union. We show that a positive emissions tax (resp. an emissions subsidy) is always optimal when emissions per unit of production are too high (resp. less than a certain threshold). When the emissions level is within a certain range, the union’s bargaining power impacts the government’s environmental policy choice between a positive emissions tax and an emissions subsidy.

Evaluating the performance of carbon tax on green technology: evidence from India.

Introduction of carbon tax and the resulting National Clean Energy and Environment Fund are seen as important policy reforms in India's quest for achieving energy security and reducing the carbon intensity of energy. This study seeks to evaluate the impact of carbon tax on R&D in energy efficient technologies. To carry out the analysis, the study employed the difference-in-difference technique for the period 2005-2017. The results highlighted that there are less chances of achieving a 'Double Dividend Hypothesis' for carbon tax in India. Except the renewable energy sector, the support initiatives for enhancing energy efficiency have been rather limited and the government's own revenue considerations seem to be dominating. The study holds that the NCEEF should be insulated from the vagaries of fiscal politics and that a strong reformation in guidelines, utilisation and allocation patterns is required to optimally realise the potential of the fund.

Nexus between Environmental Tax, Economic Growth, Energy Consumption, and Carbon Dioxide Emissions: Evidence from China, Finland, and Malaysia Based on a Panel-ARDL Approach

ABSTRACT Based on the environmental Kuznets curve theory (EKC) and the double-dividend hypothesis of environmental tax, this paper aims to examine the relationship between environmental tax, economic growth, energy consumption, and carbon dioxide emissions in China, Finland, and Malaysia from 1985 to 2014 using panel autoregressive distribution lag (ARDL) models. This paper discovers an N-shaped relationship between the volume of carbon dioxide emissions and the value of the gross domestic product. Furthermore, this study confirms that the double-dividend effect of environmental tax exists in all three countries in the long run. Overall, this study argues that evidence from Finland and Malaysia on environmental taxes that help the country to save energy and reduce carbon dioxide emissions can provide a reference for China and other developing countries.

Ecological deficit tax: A tax design and simulation of compensation for ecosystem service value based on ecological footprint in China

The expansion of resource tax to the occupation of natural ecological space is an important part of China's tax reform. This paper quantifies the occupation of natural ecological space based on the demand for energy, water, and agriculture resources in terms of an ecological footprint, and creatively convert the carbon emissions from energy consumption to occupation of carbon sinks such as woodlands and grasslands, to obtain the ecological deficits in various regions of China. Based on the evaluation of the ecological service value, the paper determines the correspondence between consumption projects, land types and ecological functions, realized the accounting of the economic value of the national ecological deficit as the sum of the regional deficits. Based on this, the ecological deficit is used as an unpaid input factor in the construction of a green Social Accounting Matrix table, and a recursive dynamic Computable General Equilibrium model is used to analyze the effects of a tax policy on the compensation for the ecological deficit value. The simulation results show that the double-dividend hypothesis exists in the primary and tertiary industries, and employment in the secondary industry that with a high value-added labor decreased, resulting in decreases in both the labor income of residents and their proportion of the national income. The growth rate of GDP decreases in the short term and then gradually increases. Capital appreciation and net exports contribute greatly to economic growth. Based on the positive role of taxation schemes in reducing ecological deficits and their negative impacts on economic growth and the income distribution, this paper suggests that, with the improvement of big data on ecological occupation, an ecological deficit tax can be introduced to target the energy sector, which has a large ecological footprint. In addition, household income should be protected through tax cuts, transfer payments, and earmarked funds, among other means, to promote economic growth and protect the environment.

Carbon taxes and the double dividend hypothesis in a recursive-dynamic CGE model for Spain

ABSTRACTA carbon tax is potentially a policy that can reduce CO2 emissions and mitigate climate risks, at lowest economy-wide costs. We develop a dynamic CGE model for Spain to assess the economic and environmental effects of a carbon tax, and test the double dividend (DD) hypothesis. We simulate the impact of three carbon taxes: €10, €20 and €30 per ton of CO2. For each tax, four ‘revenue recycling’ scenarios are examined: a reduction of taxes on capital, on labor, on value-added tax, and a scenario in which revenues are not recycled. We find a DD for taxes of €10/ton and lower, within five to seven years of implementation. We estimate an annual CO2 emissions reduction of around 10% with this tax. Under some circumstances, the DD can be achieved for a tax of €20/ton. In any case, recycling revenues to cut pre-existing taxes reduces costs of imposing carbon taxes.

Ecological Tax: an Essential Weapon in Macro-Ecological Economics

The 2008 economic crisis influences mainstream economics, people begin to reflect on the current economic development model. As an indispensable tool in ecological policy, ecological tax plays an essential role in macro-ecological economics. This paper focuses on the double dividend hypothesis of ecological tax. The study introduces the green dividend of ecological tax, and discusses the blue dividend of eco-tax. The last part is a critical reflection on green taxes.

Global Warming and Technical Change: Multiple Steady-States and Policy Options

In this paper we develop an economic growth model that includes anthropogenic climate change. We include a publicly funded research sector that creates new technologies and simultaneously expands the productivities of existing technologies. The environment is affected by R&D activities both negatively, through the increase of output from productivity growth, as well as positively as new technologies are less harmful for the environment. We find that there may exist two different steady-states of the economy, depending on the amount of research spending: one with less new technologies being developed and the other with more technologies. Thus, a lock-in effect may arise that, however, can be overcome by raising R&D spending sufficiently such that the steady-state becomes unique. We derive the combinations of fiscal policy instruments for which that can be achieved and we study the implications for the economy and for the environment. In particular, the double dividend hypothesis may hold only under some specific conditions.

Environmental taxation and the double dividend hypothesis in CGE modelling literature: A critical review

Computable general equilibrium (CGE) modelling is a flexible and open way to model the economic systems that allow practitioners to assess the impacts of different policies or external shocks over an economic system. There is some empirical literature dedicated to test the double dividend hypothesis of an environmental tax reform using CGE models. This hypothesis claims that is possible to obtain an improvement of both environmental and economic conditions by imposing an environmental tax and recycling revenues obtained to reduce other pre-existing taxes. This research provides a comprehensive review of this literature including a statistical and a meta-regression analysis. 69 different simulations from 40 studies have been analyzed. 55% of simulations have achieved a double dividend, concluding that although the environmental dividend is almost always achieved, the economic dividend still remains an ambiguous question that needs further research.

Environmental Tax Policy in Romania in the Context of the EU: Double Dividend Theory

In the last decade, environment protection gained much more significance in designing the economic policies in the European Union (EU) countries. There are many economic and policy differences between the European countries, despite of the harmonization process inside the EU area. The path of implementation of the environmental tax reforms in the EU countries differs greatly from one country to another and the effects of such taxation in the economic and environmental areas are manifold. The authors of this paper have agreed to undertake the task of testing the double dividend hypothesis of the environmental taxation in Romania (an energy-intensive country) versus the EU area as a whole, using Vector Error Correction Model (VECM) techniques and Ordinary Least Squares (OLS) estimations. Our findings show that this hypothesis is validated neither in Romania (in the economic growth area) nor in the EU area as a whole (in the unemployment area). Therefore, Romania cannot increase the level of the environmental tax for supporting economic growth, but it can grant environmental subsidies for decreasing the emissions and supporting the economic growth. This could be achieved by expanding the tax labor base and by collecting higher budgetary revenues to sustain such environmental subsidies. As far as the EU area is concerned, it is a necessary measure to continue the descending trend for the labor taxation to achieve the goal of improving the employment rate.