The Double Dividend Hypothesis of Environmental Taxes: A Survey

64 Pages Posted: 11 Jun 2003

See all articles by Ronnie Schöb

Ronnie Schöb

Freie Universitaet Berlin; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 2003


This survey reviews the recent literature on the double-dividend hypothesis of environmental taxes and discusses some extensions of the standard model such as the distributional consequences and the importance of the non-separability assumption between consumption goods and environmental quality for the optimal design of environmental policies. Turning to a model with imperfect labour markets we then show under which circumstances environmental taxes on polluting inputs in production and on polluting consumption goods can reap a second dividend in the form of an employment dividend and discuss the welfare implications. Finally, we turn to international aspects of environmental taxation. When environmental problems are tied to the use of exhaustible resources, resource-consuming countries can appropriate resource rents at the cost of resource-owning countries by levying environmental taxes strategically.

Keywords: Environmental taxation, Double-dividend hypothesis, Full-employment models, Unemployment models, International coordination

JEL Classification: H21, H23, J50, Q30

Suggested Citation

Schöb, Ronnie, The Double Dividend Hypothesis of Environmental Taxes: A Survey (June 2003). Available at SSRN: or

Ronnie Schöb (Contact Author)

Freie Universitaet Berlin ( email )

Boltzmannstraße 20
Berlin, Berlin 14195

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679

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