GROWTH EFFECTS OF A REVENUE-NEUTRAL ENVIRONMENTAL TAX-REFORM

This paper analyzes tax-policy measures within a two-sector endogenous ly-growing economy with elastic labor supply. Pollution is either mode led as a side product of physical capital used as a production factor in the find-good sector or as a side product of production. The framew ork allows us to analyze the consequences of isolated tax changes or o f a revenue-neutral environmental tax reform for economic growth. Alth ough pollution does not directly affect production processes, it can b e shown that a higher pollution tax as well as a revenue-neutral envir onmental tax reform boost economic growth, whereas a tax on capital, c onsumption, or labor reduces the long-term growth rate of the economy.