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| Environmental Tax, Double Dividend and Economic Growth |
| NIU Huan, YAN Chengliang
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| School of Economics, Central University of Finance and Economics |
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Abstract In a long time, China's rapid economic growth was at the cost of pollution, which also has caused serious medical burden of environmental diseases and the loss in health human capital. The phenomenon of “pollution before wealth” restricts sustainable and high-quality economic development. More seriously, we may confront the risk of falling into an “environmental poverty trap”. On Jan 1st 2018, China implemented environmental tax to guide polluters to reduce emissions, which is of great significance for building a “Beautiful and Healthy China”. Two problems associated with environmental tax are worth exploring. First, it is of theoretical and practical significance to discuss whether environmental tax will realize “double dividend”. Second, confronted with the problems of “pollution before wealth” and “old before wealth”, it is a worthy study whether environmental tax can help to get rid of the “environmental poverty trap”.
This paper constructs an overlapping generation model(OLG), which includes environmental taxes, pollution and life expectancy. The study has shown that environmental taxes have an inverted U-shaped or monotonically increasing relationship with the pollution and per capital income under certain parameters. This relationship indicates that the lower tax rates may increase pollution and excessive tax rates may reduce per capital income. The corresponding mechanism is that while the “negative revenue effect” of environmental taxes leads to a decline in capital accumulation, the “health effects” of environmental taxes increases life expectancy and capital accumulation. The effect of environmental taxes on the environment and the economy is transmitted through capital accumulation. The government has more revenue by increasing tax rates in environment to increase expenditure on environmental governance, which makes it easier for the economy to generate green dividends. Further, we find that there is a certain tax rate interval to achieve a “double dividend”, which is in line with the green development concept of “lucid waters and lush mountains are invaluable assets”. Under the endogenous growth framework, there are multiple equilibrium points, that is, a stable balanced growth path and an environmental poverty trap. On the balanced growth path, the environmental tax rate and economic growth have an inverted U-shaped relationship.
The contributions of this paper are as follows: First, this paper introduces life expectancy with the concept of “prevention is greater than cure” and emphasizes the time lag of pollution and public health on health. This paper enriches the mechanism of environmental taxes on consumption and savings from the perspective of “life cycle” by introducing life expectancy. Second, under the neoclassical growth framework, the existence of “double dividend” provides theoretical foundation for the green development concept. Third, Under the endogenous growth framework, we find that environmental policies can explain the phenomenon that some countries have realized the model of “environmental Kuznitz curve”, while others falled into the “environmental poverty trap”, which enriches the theoretical mechanism for explaining income disparity among countries.
The policy recommendations mainly include following points: There is an optimal environmental tax rate in the economy,that is,an excessively low environmental tax rate may aggravate pollution, and an excessively high environmental tax rate may will inhibit economic growth. Chinese environmental tax only accounted for 0.14% of total tax revenue in 2019, so the environmental tax rate should be appropriately increased. Local governments make a comprehensive consideration of the environmental carrying capacity, pollutant status and economic development goals when formulating differentiated environmental tax rates. We will focus on raising environmental tax rates for industries with high pollution and carbon emissions, and achieve the goal of coordinated pollution reduction and carbon reduction. Second, according to the pollution accumulation equation, pollution depends on investment, emission intensity and governance efficiency. It is necessary to increase investment in environmental governance, reduce pollution emission intensity through upgrading technology and restructuring industrial structure, and improve governance efficiency by updating environmental governance equipment and technology. Third, pollution causes health damage to residents, so the government should increase people's health and consumer welfare caused by pollution through increasing public health spending.
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Received: 25 October 2019
Published: 02 August 2021
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