A Reconsideration of gDouble Dividendsh Hypothesis in Taxation on Externalities

Bovenberg and Mooij (1994) and others pointed out that the optimal taxation on goods with external diseconomy both collects revenue and also corrects the external diseconomy by the goods, and thus it is said that the tax has gdouble dividendsh. The purpose of the present paper is to examine whether the double-dividend arguments by Bovenberg and Mooij and others are appropriate when they are viewed from the traditional arguments of optimal and corrective (Pigovian) taxation. Based on their framework, we show that it should be evaluated differently from Bovenberg and Mooij whether double-dividend hypothesis holds or not, and that the hypothesis usually holds if it is appropriately defined.