| By: |
Eftichios Sartzetakis (University of Macedonia);
Panagiotis D. Tsigaris (Thompson Rivers University) |
| Abstract: |
This paper examines the double dividend hypothesis in the presence of labour
income uncertainty. Empirical evidence shows that uncertainty over labour
income is particularly significant in developing, while not negligible in
developed countries. Under uncertainty, and assuming incomplete capital
markets, the tax system plays a role in providing social insurance and a green
tax reform influences its effectiveness. We show that the increase in
environmental tax reduces consumption risk while the balanced budget decrease
in labour income tax increases income risk. We find that the total welfare
effect of a green tax reform differs substantially from the case of certainty.
The critical parameters determining the existence of a second dividend are the
lump sum transfers, the relative substitutability of the two goods for leisure
and the initial tax rates relative to their optimal that determine also the
response of labour supply to a change in the tax mix. |
| Keywords: |
Double Dividend Hypothesis, Environmental Taxation, Labor Income Taxation, Uncertainty, Tax Incidence Analysis |
| JEL: |
H21 H23 D62 |
| Date: |
2007–11 |
| URL: |
http://d.repec.org/n?u=RePEc:fem:femwpa:2007.99&r=pub |