TY - JOUR AU - Fullerton,Don AU - Metcalf,Gilbert E. TI - Environmental Taxes and the Double-Dividend Hypothesis: Did You Really Expect Something for Nothing? JF - National Bureau of Economic Research Working Paper Series VL - No. 6199 PY - 1997 Y2 - September 1997 UR - http://www.nber.org/papers/w6199 L1 - http://www.nber.org/papers/w6199.pdf N1 - Author contact info: Don Fullerton Department of Finance University of Illinois BIF Box#30 (MC520) 515 East Gregory Drive Champaign, IL 61820 Tel: 217/244-3621 Fax: 217/244-3102 E-Mail: dfullert@illinois.edu Gilbert E. Metcalf Department of Economics Tufts University Medford, MA 02155 1500 Pennsylvania Ave., NW Tel: 617/627-3685 Fax: 617/627-3917 E-Mail: gilbert.metcalf@tufts.edu AB - The double-dividend hypothesis' suggests that increased taxes on polluting activities can provide two kinds of benefits. The first is an improvement in the environment, and the second is an improvement in economic efficiency from the use of environmental tax revenues to reduce other taxes such as income taxes that distort labor supply and saving decisions. In this paper, we make four main points. First, the validity of the double-dividend hypothesis cannot logically be settled as a general matter. Second, the focus on revenue in this literature is misplaced. We demonstrate that three policies have equivalent impacts on the environment and on labor supply. One of those policies raises revenue from the environmental component of the reform, another loses revenue, and a third has no revenue associated with it. Third, what matters is the creation of privately-held scarcity rents. Policies that raise product prices through some restriction on behavior may create scarcity rents. Unless those rents are captured by the government, such policies are less efficient at ameliorating an environmental problem than are policies that do not create rents. Finally, we distinguish between two types of command and control regulations on the basis of whether they create scarcity rents. ER -