Environmental tax on directed technological innovation in a green growth model

Abstract

To ensure that green growth are achieved and socially optimal, we develops an endogenous growth model featuring a directed technological innovation, environmental taxation and economic activity. Our model investigates the inner dynamic interactions of green growth. Then, a numerical analysis is presented to trace how the green growth will be achieved by the four parameters: the size of tax distortions, the rate of capital tax, the elasticity of pollution conversion and the cost of carbon abatement technological innovation. It is found that a tax distortion for lump-sum transfer payments can explore the double dividend. The benefits arising from the income tax become larger the more stringent capital tax and environmental tax.