The double dividend, second-best worlds, and real-world environmental policy

The recent series of papers by Bovemberg, Goulder, Parry and others argue t hat the double dividend is unlikely to exist because of second-best problem s. They argue that the imposition of environmental tax in an economy alread y distorted by income taxes will further distort the economy by reducing in centives to supply labor. Our paper argues that this is not likely to be th e case because of the restrictive assumptions made by these models, and bec ause of the role of the environment as a factor of production. (C) 1999 Els evier Science B.V. All rights reserved.