Korean Energy Economic Review ISSN:1599-7057(Print) 에너지경제연구

Debate on a 'double dividend' from replacing conventional income taxes in part or in whole with environmental taxes has received significant attention. The literature has focused on the problem in the context of closed economies. However, subnational governments are also interested in the merits of green taxation. Within this context, labor migration induced by regional changes in real wages and environmental amenities will modify the welfare consequences. This paper examines the existence of the double dividend from substituting environmental taxes swapped for labor income taxes in small open economies. The results show there exists a double dividend from substituting the green tax for the labor tax. Labor migration affected the consumer welfare negatively. Unilateral state tax regime was better than uniform federal tax regime in terms of welfare improvement. The gross state product dropped by 0.03~0.3%.