| Institution: | (1) Department of Economics, Michigan State University, Marshall Hall, East Lansing, MI, 48825-1109;(2) Department of Economics, Michigan State University, Marshall Hall, East Lansing, MI, 48825-1109;(3) Korea Economic Research Institute, Center for Finance & Tax, 28-1 Yoido-Dong, Yeongdungpo-Ku,Seoul, 150-756, Korea |
| Abstract: | We show that, if the utility function is non-homothetic, environmental taxes can have positive non-environmental effects. These effects are illustrated with specific reference to taxes on gasoline and tobacco, in the context of a computational model. We also clarify the relationship between the  double dividend (associated with a marginal change from a tax system with low reliance on environmentally motivated taxes) and the situation in which the optimal environmental tax rate is greater than the Pigouvian tax rate. These two situations are generated by rather similar combinations of parameters.JEL Code: H21, H23, D58 |
