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Green policies and public finance in a small open economy (Revised version)

  • Economics


: b~ ~ ~ ~ Discussion R for 8414 ~mic Research a er 1983 35 II~IIIIIIII IIIIII III IN~NINIId~,~V I~Nd ,~, ~~ 0~ ~, f r , CentER for Economic Research No. 9335 Green Policies and Public Finance in a Small Open Economy by A. L. Bovenberg and F. van der Ploeg June 1993 ISSN 0924-7815 ! i~jijj -,~~ K.~.B.1~-.-.~~'.~ EI~~i~TH~i:K; ~ï:,,,~ ~ Ti;...~~~;~r GREE`' POLICIES AtiD PL'BLIC FItiA~CE Iti A S~tALL OPEti ECOti0~11'~ A. L. Bo~enberg CentER, Tilburg University OCFEB. Erasmus l,'ni~ersitv Rotterdam and CEPR F. ~an der Ploeg L'nicersity of Amsterdam, Tinbergen Institute and CEPR .~BSTRACT ~1e e.~plore the effects of greener preferences for the public finances, emplo~ment, and the domestic capital stock in a second-best frsme~ork. Re find that greener preferences t~pically result in ~apital flight. Also, emplo~ment declines despite the fa~tor substitution that is induced b~ a lo~~er 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. ma~ rise if most of the impro~ement in en~ironmental qualitc occurs through a lower le~el rather than a cleaner composition of economic acti~it~. Howe~er, if the labour suppl} .ur~e bends back~~ards, pri~ate utility rises while public consumption falls. JEL code: EóO, H'I. H~31, Q28 l.c~~~ords: En~ironmental e.~[ernalities; natural resources; public abatemenr, emplo}ment; capital; small open econom}; excess burden; marginal cost of public funds; public goods; optimal ta.cation; "double di~ idend'; second-best. Februan 1993 Re~ ised April 1993 ~lailing addresses: -~.L. Bo~enberg F. san der Ploeg CentER, Tilburg ~'ni~ersit~ FEE, lini~ersity of Amsterdam PostFox 901~3 Roe[ersstraat 11 3000 LE Tilburg, The ~'etherlands 1018 ~~ B,~msterdam, The hetherlands teL (r31)-13-66~~-0 teL (t3I)-~O-S~Sd201 ~.An earlier ~ersion of this paper has been presented at [he conference "Tax Policy in Small Open Economie

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