Green Policies and Public Finance in a Small Open Economy

We explore the effects of greener preferences for the public finances, employment, and the domestic capital stock in a second-best framework. We find that greener preferences typically result in capital flight. Also, employment declines despite the factor substitution that is induced by a lower tax...

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Bibliographic Details
Published in:The Scandinavian journal of economics 1994-01, Vol.96 (3), p.343-363
Main Authors: Bovenberg, A. Lans, van der Ploeg, Frederik
Format: Article
Language:English
Subjects:
Capital flight
Capital movement
Consumer economics
Consumption
Economic activity
Economic models
Economic resources
Employment
Energy taxes
Environmental degradation
Environmental policy
Environmental quality
Externality
Green taxes
Implications
Income taxes
Labor supply
Natural resources
Open economies
Optimal taxation
Pollution control costs
Public finance
Public policy
Studies
Taxation
Citations: Items that cite this one
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Summary:We explore the effects of greener preferences for the public finances, employment, and the domestic capital stock in a second-best framework. We find that greener preferences typically result in capital flight. Also, employment declines despite the factor substitution that is induced by a lower tax on labour and a higher tax on natural resources. If the uncompensated wage elasticity of labour supply is positive, private utility declines. Public consumption, in contrast, may rise if most of the improvement in environmental quality occurs through a lower level rather than a cleaner composition of economic activity. However, if the labour supply curve bends backwards, private utility rises while public consumption falls.
ISSN:0347-0520
1467-9442
1467-9442
DOI:10.2307/3440497