Is a Double Dividend Better than a Single Dividend?

Abstract

It has been argued that the revenue-raising (RR) environmental policies are more efficient than the non-revenue-raising (NRR) policies because of the revenue-recycling effect. When the goal of the environmental protection is subject to the influence of interest groups, we find that the NRR policies may be more efficient than the RR policies. By endogenizing the goal of environmental protection, although the RR policies can exploit the revenue-recycling effect, they may result in a greater amount of pollution emission than the NRR policies, and thus give rise to a lower level of social welfare.