When can carbon taxes have a positive effect on economic growth

What is it about?

Carbon taxes are often thought to reduce GDP and resources available for consumption. However, many argue that the revenues from such carbon taxes can reduce current taxes on labor income and capital income and that could have a positive impact on GDP. We examine the circumstances where this "double dividend" could happen using a model of the Spanish economy. We find a positive GDP effect for low carbon tax rates but not for higher ones.

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