This paper analyses the medium-term effects of a carbon tax on growth and CO2 emissions in Ireland, a small open economy. We find that a double dividend exists if the carbon tax revenue is recycled through reduced income taxes. If the revenue is recycled by giving a lump-sum
transfer to households, a double dividend is unlikely. We also determine that a greater incidence of the carbon tax falls on capital than on labour. When combined with a decrease in income tax, there is a clear shift of the tax burden from labour to capital. Finally, most of the effect on
the economy is due to changes in the competitiveness of the manufacturing and market services sectors.
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Document Type: Research Article
Central Bank of Ireland, North Wall Quay, Dublin 1, Ireland
Economic and Social Research Institute, Whitaker Square, Sir John Rogerson's Quay, Dublin 2, Ireland
Department of Economics, University of Sussex, Mantell Building Falmer, BN1 9RF, UK
Publication date: September 1, 2013
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