Social and Behavioral Sciences Commons^™

Environmental Taxes And The Double-Dividend Hypothesis: Did You Really Expect Something For Nothing?, Don Fullerton, Gilbert Metcalf

Don Fullerton

The "double-dividend hypothesis" suggests that increased taxes on polluting activities can provide two kinds of benefits. The first dividend is an improvement in the environment, and the second dividend is an improvement in economic efficiency from the use of environmental tax revenues to reduce other taxes such as income taxes that distort labor supply and saving decisions. In this paper, we make four main points. First, the validity of the double-dividend hypothesis cannot logically be settled as a general matter. Second, the focus on revenue in this literature is misplaced. We demonstrate that three policies have equivalent impacts on the …