88
M. P. Ramos and O. O. Chisari
Literature on Multiple Dividends of the Environmental
Policy
Both theoretical and empirical literature on environmental policy agrees that the first
dividend of, for instance, a carbon tax is a cleaner environment, which, applied to our
case of study, implies lower GHG emissions (de Mooij 2000); however, the evidence
is not conclusive concerning other non-environmental dividends.
According to the meta analysis of Freire-González (2018), who revised 40 empirical papers using CGE models (1993–2016) looking for economic dividends of an
environmental tax reform (ETR), the emergence of a second dividend (improvement in economic efficiency) and a third dividend (greater employment) depends on
the current tax structure (optimal or not) and on the instruments through which the
carbon tax revenue is recycled (labour tax, capital tax, income tax,
1 food taxes/tariffs,
lump-sum transfers), agents’ preferences, factors mobility (sector-specific factors
in polluting sectors, mobility across sectors, regions and international mobility),
factors substitution (energy consumption vs. capital of new technologies), institutional enforcement,
2 among others. He also points out that the double and triple
dividends appear mainly in European countries, and even though Africa, Oceania
and South America also confirm this expected result, it is not sufficiently supported
statistically because of the lack of evidence from these continents.
Moreover, Freire-González (2018) notices that the pollution tax must be dynamic
given that this instrument motivates the reduction in pollution and, thus, the tax
base; consequently, the switch to other pollutants as pollution tax base should be
necessary in order to keep environmental and economic dividends over time. The
main conclusion of this paper, which defines the forthcoming research on CC policies,
is the need for the design of an ETR taking into account the particularities of each
economic system in order to yield not only the environmental dividend, but also other
multiple economic dividends simultaneously.
In the next subsections, we summarize the discussion about the traditional double
dividend that concerns the recycling of a pollution tax through other distortive taxes in
order to reduce the deadweight losses and to increase the GDP. Then, we introduce
the possibility that an ETR leads to other dividends linked to the labour market
(unemployment) and socio-economic conditions (poverty and income distribution).
Finally, we discuss the impact of CC policies on the external balance, particularly
when trade, FDI and international cooperation for technological innovation transfers
are allowed. The chosen papers for this literature review meet the applications of
developing countries and the main behavioural assumptions for the modelling of
developing countries.
1 Allan et al. (2014) finds that only income taxes with forward-looking behaviour of agents secure
the double dividend (lower carbon emissions and greater GDP) in Scotland.
2 Castiglione et al. (2018) finds econometric evidence of institutional issues (rules of law, policy
enforcement) as key determinants of an ETR in the European Union.
M. P. Ramos and O. O. Chisari
Literature on Multiple Dividends of the Environmental
Policy
Both theoretical and empirical literature on environmental policy agrees that the first
dividend of, for instance, a carbon tax is a cleaner environment, which, applied to our
case of study, implies lower GHG emissions (de Mooij 2000); however, the evidence
is not conclusive concerning other non-environmental dividends.
According to the meta analysis of Freire-González (2018), who revised 40 empirical papers using CGE models (1993–2016) looking for economic dividends of an
environmental tax reform (ETR), the emergence of a second dividend (improvement in economic efficiency) and a third dividend (greater employment) depends on
the current tax structure (optimal or not) and on the instruments through which the
carbon tax revenue is recycled (labour tax, capital tax, income tax,
1 food taxes/tariffs,
lump-sum transfers), agents’ preferences, factors mobility (sector-specific factors
in polluting sectors, mobility across sectors, regions and international mobility),
factors substitution (energy consumption vs. capital of new technologies), institutional enforcement,
2 among others. He also points out that the double and triple
dividends appear mainly in European countries, and even though Africa, Oceania
and South America also confirm this expected result, it is not sufficiently supported
statistically because of the lack of evidence from these continents.
Moreover, Freire-González (2018) notices that the pollution tax must be dynamic
given that this instrument motivates the reduction in pollution and, thus, the tax
base; consequently, the switch to other pollutants as pollution tax base should be
necessary in order to keep environmental and economic dividends over time. The
main conclusion of this paper, which defines the forthcoming research on CC policies,
is the need for the design of an ETR taking into account the particularities of each
economic system in order to yield not only the environmental dividend, but also other
multiple economic dividends simultaneously.
In the next subsections, we summarize the discussion about the traditional double
dividend that concerns the recycling of a pollution tax through other distortive taxes in
order to reduce the deadweight losses and to increase the GDP. Then, we introduce
the possibility that an ETR leads to other dividends linked to the labour market
(unemployment) and socio-economic conditions (poverty and income distribution).
Finally, we discuss the impact of CC policies on the external balance, particularly
when trade, FDI and international cooperation for technological innovation transfers
are allowed. The chosen papers for this literature review meet the applications of
developing countries and the main behavioural assumptions for the modelling of
developing countries.
1 Allan et al. (2014) finds that only income taxes with forward-looking behaviour of agents secure
the double dividend (lower carbon emissions and greater GDP) in Scotland.
2 Castiglione et al. (2018) finds econometric evidence of institutional issues (rules of law, policy
enforcement) as key determinants of an ETR in the European Union.