Environmental Tax Reform and Growth: Income Tax Cuts or Profits Tax Reduction |
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Authors: | Minoru Nakada |
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Institution: | 1.Graduate School of Environmental Studies,Nagoya University,Nagoya,Japan |
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Abstract: | This study investigates how recycling revenues, which are generated by environmental taxes, affect growth through different
types of tax cuts. A growth model with creative destruction (Aghion and Howitt Econometrica 60(2):323–351,1992, Aghion and
Howitt The economics of growth, 2009) is modified to include the production of final output as a source of pollution. This
paper demonstrates that introducing an environmental tax, accompanied by either an income tax cut or a profits tax reduction,
increases the output growth rate. The analysis also shows that, if technological change is resulted from deliberate activities
of economic agents, the reduction of the profits tax rate for an intermediate monopolist is more growth-enhancing than an
income tax cut since a profits tax reduction directly promotes R&D activities. |
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