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Carbon Pricing, Growth and the Environment

Carbon Pricing, Growth and the Environment

Critical Issues in Environmental Taxation series

Edited by Larry Kreiser, Ana Yábar Sterling, Pedro Herrera, Janet E. Milne and Hope Ashiabor

The emphasis of the book lies in finding critical solutions to global climate change including chapters on environmental fiscal reform and unemployment in Spain, EU structural and cohesion policy and sustainable development, ecological tax reform in Europe and Asia, Australia’s carbon pricing mechanism, and many other timely topics.

Chapter 1: Environmental fiscal reform and unemployment in Spain

Anil Markandya, Mikel González- Eguino and Marta Escapa

Subjects: economics and finance, environmental economics, public finance, environment, climate change, environmental economics, law - academic, tax law and fiscal policy


The theoretical literature relevant to the relationship between environmental taxation and employment creation is centred on the suggestion by Pearce (1991) that environmental taxation could lead to a ‘double dividend’. The idea behind this suggestion is that environmental taxes not only produce improvements in the environment but also generate substantial amounts of government revenue. This new revenue allows governments to reduce the rates of other taxes in the economy while maintaining a constant level of total revenue and expenditure. As these other taxes are generally ‘distortionary’ (i.e. they interfere with the efficient functioning of markets), the reduction in their rates can be seen as improving efficiency and thus producing a second benefit from the adoption of environmental taxes. In this chapter we review the literature on the employment double dividend for Spain and add to it with some new analysis of our own that fills some important gaps in the literature. The chapter is structured as follows. Section 2 provides a theoretical discussion of the double dividend, analysing when we can expect to realise employment gains from a shift towards environmental taxes and when such gains are unlikely. Section 3 looks at the evidence for the double dividend for Spain and includes the results of a model we have developed for that country. Section 4 concludes with some reflections on where further research is needed and where the case for action is clear.

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