Environmental and Resource Economics

, Volume 13, Issue 2, pp 187–207 | Cite as

Environmental Policy, Tax Incidence, and the Cost of Public Funds

  • Jenny E. Ligthart
  • Frederick Van Der Ploeg


This paper studies under what conditions a ‘double dividend’ may occur in the sense that both environmental quality and employment rise. A simple static general equilibrium model is employed in which tax policy faces the dual task of internalising a negative environmental externality and raising revenue to finance public consumption. The model features a clearing labour market with both labour demand and supply and a fixed factor of production (e.g. capital). Hence, we can study tax incidence and its effect on employment, environmental quality, and the marginal cost of public funds. It is shown for the case of an upward sloping labour supply curve and less than full tax shifting by employers that a shift towards greener preferences cannot yield a double dividend, even if the fixed factor is important. However, if labour supply curve bends backwards, more environmental concern confers a double dividend.

cost of public funds double dividend environmental externalities pollution public abatement optimal taxation public goods tax incidence 


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Copyright information

© Kluwer Academic Publishers 1999

Authors and Affiliations

  • Jenny E. Ligthart
    • 1
  • Frederick Van Der Ploeg
    • 1
  1. 1.Department of EconomicsUniversity of AmsterdamThe Netherlands

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