“Multiple Dividends with Climate Change Policies: Evidence …
89
The Double Dividend: Lower Emissions and Greater GDP
Together with trade policies, tax policies are the preferred tools that provide incentives to limit GHG emissions. In fact, it is highly probable that taxes will play a
fundamental role for CC policies in the future since they are more easily administered by governments from developing countries, such as Argentina (Aldy et al.
2010). More sophisticated instruments, like cap-and-trade mechanisms, could be
more demanding in terms of the supply of institutional services that those economies
can provide. There is agreement then with Tol (2008), who argues that taxes on
emissions are the lowest cost instrument.
When only taxes are taken into account, then we have to tackle the question of
how to define double or multiple dividends. According to Schöb (2003), the “weak”
form of the double dividend hypothesis states that a revenue-neutral green tax reform
is able to cut distortionary taxes, thus lowering the efficiency cost of the green tax
reform. The “strong” form of the double dividend asserts that a green tax reform not
only improves the environment, but also increases non-environmental welfare.
Giménez and Rodríguez (2010) argue that this public finance approach, which
differentiates weak from strong double dividends of an ETR on the basis of efficiency
gains/losses of the tax system, is not an appropriate measure to evaluate the double
dividend under a general equilibrium (GE) approach. Since the GE models allow for
interactions between taxes, it is necessary to isolate each tax change in welfare, i.e.
first, the change in welfare due to the environmental tax compared to the benchmark
(without environmental taxes), and then, the change in welfare due to the reduction
of other distortionary taxes after introducing the pollution tax.
3
In the particular case of Latin American countries, there is a shortage of empirical
studies about the double dividend. Chisari and Miller (2015) find a rise in the double
dividend in Argentina, Chile, El Salvador, Jamaica and Peru, but not in Brazil, when
reducing labour taxes to compensate the additional revenue produced by the carbon
tax. Grottera et al. (2017) analyse the case of the carbon tax in Brazil, without and
with recycling tax revenue through lower labour tax or greater lump-sum transfers to
poor households. In this case, the double dividend emerges only with lower labour
tax compensation. No change in technology is allowed in the previous results. But
allowing for technological innovation in the energy sector exogenously (following the
historical trend) and endogenously (through a greater substitution between capital
and energy when prices change due to carbon tax), Rivera et al. (2016) find an
unambiguous double dividend in the case of Mexico when achieving its CO 2 emission
targets by 2050. This result is also reached through an ETR that allows for the
compensation of the revenue from distortionary taxes with the introduction of a
carbon tax.
3 Giménez and Rodríguez (2010) compare double dividend measures for the ETR in the USA.
89
The Double Dividend: Lower Emissions and Greater GDP
Together with trade policies, tax policies are the preferred tools that provide incentives to limit GHG emissions. In fact, it is highly probable that taxes will play a
fundamental role for CC policies in the future since they are more easily administered by governments from developing countries, such as Argentina (Aldy et al.
2010). More sophisticated instruments, like cap-and-trade mechanisms, could be
more demanding in terms of the supply of institutional services that those economies
can provide. There is agreement then with Tol (2008), who argues that taxes on
emissions are the lowest cost instrument.
When only taxes are taken into account, then we have to tackle the question of
how to define double or multiple dividends. According to Schöb (2003), the “weak”
form of the double dividend hypothesis states that a revenue-neutral green tax reform
is able to cut distortionary taxes, thus lowering the efficiency cost of the green tax
reform. The “strong” form of the double dividend asserts that a green tax reform not
only improves the environment, but also increases non-environmental welfare.
Giménez and Rodríguez (2010) argue that this public finance approach, which
differentiates weak from strong double dividends of an ETR on the basis of efficiency
gains/losses of the tax system, is not an appropriate measure to evaluate the double
dividend under a general equilibrium (GE) approach. Since the GE models allow for
interactions between taxes, it is necessary to isolate each tax change in welfare, i.e.
first, the change in welfare due to the environmental tax compared to the benchmark
(without environmental taxes), and then, the change in welfare due to the reduction
of other distortionary taxes after introducing the pollution tax.
3
In the particular case of Latin American countries, there is a shortage of empirical
studies about the double dividend. Chisari and Miller (2015) find a rise in the double
dividend in Argentina, Chile, El Salvador, Jamaica and Peru, but not in Brazil, when
reducing labour taxes to compensate the additional revenue produced by the carbon
tax. Grottera et al. (2017) analyse the case of the carbon tax in Brazil, without and
with recycling tax revenue through lower labour tax or greater lump-sum transfers to
poor households. In this case, the double dividend emerges only with lower labour
tax compensation. No change in technology is allowed in the previous results. But
allowing for technological innovation in the energy sector exogenously (following the
historical trend) and endogenously (through a greater substitution between capital
and energy when prices change due to carbon tax), Rivera et al. (2016) find an
unambiguous double dividend in the case of Mexico when achieving its CO 2 emission
targets by 2050. This result is also reached through an ETR that allows for the
compensation of the revenue from distortionary taxes with the introduction of a
carbon tax.
3 Giménez and Rodríguez (2010) compare double dividend measures for the ETR in the USA.