Environmental tax reform and induced technological change

YAMAGAMI, Hiroaki (2013): Environmental tax reform and induced technological change.

Abstract

This paper examines the importance of induced technological change in considering the efficiency costs of environmental policy. In particular, in modeling an endogenous formation of energy-saving technology through a variety of intermediates, the paper studies the welfare effects of environmental tax reform in a general equilibrium model. Using this model, the paper shows that environmental tax reform induces an expansion of the variety of intermediates by increasing rents from innovating new intermediates and, thereby, brings technological change. Then, the induced variety expansion by environmental tax reform achieves positive externalities and plays an important role both to decrease the efficiency costs and to improve the environmental quality.

• Item Type: MPRA Paper
• Language: English
• Keywords: Double dividend, Energy saving, Environmental tax reform, Induced technological change, Tax-interaction effect
• Subjects: D - Microeconomics > D6 - Welfare Economics > D62 - Externalities; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q55 - Technological Innovation; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

References

[1] Bento, A.M. and Jacobsen, M. (2007) "Ricardian Rents, Environmental Policy and the 'Double-dividend' Hypothesis", Journal of Environmental Economics and Management 53(1), 17–31

[2] Bovenberg, A.L. and de Mooij, R.A. (1994) "Environmental Levies and Distortionary Taxation", American Economic Review 84(4), 1085–1089

[3] Bovenberg, A.L. (1999) "Green Tax Reforms and the Double Dividend: An Updated Reader's Guide", International Tax and Public Finance 6(3), 421–443

[4] Bovenberg, A.L., Goulder, L.H. and Gurney, D.J. (2005) "Efficiency Costs of Meeting Industry-Distributional Constraints under Environmental Permits and Taxes", RAND Journal of Economics 36(4), 951–971

[5] Buonanno, P., Carraro, C., and Galeotti, M. (2001) "Endogenous Induced Technological Change and the Costs of Kyoto", Resource and Energy Economics 25(1), 11–34

[6] Dixit, A.K. and Stiglitz, J.E. (1977) "Monopolistic Competition and Optimal Product Diversity", American Economic Review 67(3), 297–308

[7] Goulder, L.H. (1995) "Environmental Taxation and the Double Dividend: A Reader's Guide", International Tax and Public Finance 2(2), 155–182

[8] Goulder, L.H., Parry, I.W.H. and Burtraw, D. (1997) "Revenue-Raising versus Other Approaches to Environmental Protection: The Critical Significance of Preexisting Tax Distortions", RAND Journal of Economics 28(4), 708–731

[9] Goulder, L.H. and Mathai, K. (2000) "Optimal CO2 Abatement in the Presence of Induced Technological Change", Journal of Environmental Economics and Management 39(1), 1–38

[10] Goulder, L.H. and Schneider, S.H. (1999) "Induced Technological Change and the Attractiveness of CO2 Abatement Policies", Resource and Energy Economics 21(3–4), 211–253

[11] Jaffe, A.B., Newell, R.G. and Staivins, R.N. (2002) "Environmental Policy and Technological Change", Environmental and Resource Economics 22(1–2), 41–69

[12] Löschel, A. (2002) "Technological Change in Economic Models of Environmental Policy: A survey", Ecological Economics 43(2–3), 105–126

[13] Parry, I.W.H. (1995) "Pollution Taxes and Revenue Recycling", Journal of Environmental Economics and Management 29(3), S64–S77

[14] Parry, I.W.H. and Bento, A.M. (2000) "Tax Deductions, Environmental Policy, and the "Double Dividend" Hypothesis", Journal of Environmental Economics and Management 39(1), 67–96

[15] Popp, D., Newell, R.G. and Jaffe, A.B. (2009) "Energy, the Environment, and Technological Change", NBER Working Paper 14832

[16] Romer, P. (1990) "Endogenous Technological Change", Journal of Political Economy 98(S5), S71–S102

[17] Schwartz, J. and Repetto, R. (1997) "Nonseparable Utility and the Double Dividend Debate: Reconsidering the Tax-International Effect", Environmental and Resource Economics 15(2), 149–157

[18] Smulders, J.A. and de Nooij, M. (2003) "The Impact of Energy Conservation on Technology and Economic Growth", Resource and Energy Economics 25(1), 59–79

[19] Williams, R.C. III (2002) "Environmental Tax Interactions When Pollution Affects Health or Productivity", Journal of Environmental Economics and Management 44(2), 261–270

[20] Yamagami, H. (2009) "Health Effects, Tax Deductions for Medical Expenditure, and the Double Dividend", FinanzArchiv/ Public Finance Analysis 65(1), 105–121