Can environmental taxes benefit both the environment and the economy? This paper reviews the 'double dividend' hypothesis: whether revenue-neutral green taxes can improve the environment while reducing tax system distortions. A major focus is the relation between modelling and results. Modeling advances, both theoretical and empirical, are assessed. The theoretical work shows that significant advances have been made in allowing for imperfectly competitive markets, in particular for labor. Empirical work on the ‘employment double dividend’ remains limited. This paper promotes further research into realistic empirical models and extended sensitivity analyses. This investigation is essential for shaping effective environmental policy and guiding future research efforts in this area.
Published in Environment and Development Economics, this paper is highly relevant to the journal's focus on the intersection of environmental issues and economic development. The 'double dividend' hypothesis is a central topic in environmental economics, and the review provides valuable insights for policymakers and researchers in the field.