Energy utilization, especially from fossil fuels, creates hidden costs in the form of pollution and environmental damages. The costs are well documented but are hidden in the sense that they occur outside the market, are not reflected in market prices, and are not taken into account by energy users. Double Dividend presents a novel method for designing environmental taxes that correct market prices so that they reflect the true cost of energy. The resulting revenue can be used in reducing the burden of the overall tax system and improving the performance of the economy, creating the double dividend of the title.
The authors simulate the impact of environmental taxes on the U.S. economy using their Intertemporal General Equilibrium Model (IGEM). This highly innovative model incorporates expectations about future prices and policies. The model is estimated econometrically from an extensive 50-year dataset to incorporate the heterogeneity of producers and consumers. This approach generates confidence intervals for the outcomes of changes in economic policies, a new feature for models used in analyzing energy and environmental policies. These outcomes include the welfare impacts on individual households, distinguished by demographic characteristics, and for society as a whole, decomposed between efficiency and equity.
About the Authors
Dale W. Jorgenson is Samuel W. Morris University Professor of Economics at Harvard University.
Richard Goettle is Lecturer of Finance and Economics at Northwestern University.
Mun S. Ho is Visiting Fellow at Harvard’s Institute for Quantitative Social Science.
Peter Wilcoxen is Associate Professor of Economics and Public Administration at Syracuse University.
"Of all the potential tax reforms, taxing pollution and carbon dioxide emissions has the greatest promise. The analysis in Double Dividend provides a rigorous and thoughtful examination of the costs, benefits, and distributional impacts of green taxes. Any country contemplating tax reforms should begin with a study of the important conclusions in this volume."
—William Nordhaus, Sterling Professor of Economics, Yale University
“Jorgenson and colleagues provide the most thorough, rigorous analysis to date on how shifting taxes—away from capital and labor and onto carbon dioxide and other greenhouse gases—can both mitigate climate change and boost economic growth. Their analysis is unique in its theory-driven model structure, data-driven estimation, and detailed representation of existing taxes, emission sources, and household impacts. It is an important and especially timely contribution to the twin debates over climate change policy and fiscal reform.”
—William A. Pizer, Duke University
“This is a very impressive book. It provides a magisterial analysis of the impacts on the US economy from alternative levels of climate mitigation effort when taking into account capital formation, technological change, and the structure of economic growth. The attention to detail is exemplary, as illustrated, for example, by the careful delineation of impacts on households with different demographic and socio-economic characteristics. For researchers, this offers the state of the art in general equilibrium modeling. For policy analysts, it offers a powerful demonstration of the practical benefits from thoughtful policy design.”
—Michael Hanemann, Wrigley Professor of Economics, Arizona State University, and Chancellor’s Professor Emeritus, Department of Agricultural & Resource Economics, University of California, Berkeley