Green taxes and uncertain timing of technological change

This paper concerns the role of environmental taxation in a model with endo genous technological change, where the latter implies that natural inputs b ecome more productive. The timing of technological change is, in turn, unce rtain and the likelihood of discovering the new technology is related to th e amount of resources spent on R&D. The analysis is based on a dynamic gene ral equilibrium model. One purpose of the paper is to design a policy so as to internalize the external effects arising from pollution and R&D. Anothe r is to develop cost benefit rules for green tax reforms, when the initial equilibrium is suboptimal. (C) 2001 Elsevier Science B.V. All rights reserv ed. JEL classification: D60; D62; D80; H21; O33.