A classroom game on a negative externality correcting tax: Revenue return, regressivity, and the double dividend. Issue 2 (3rd April 2017)

• Record Type: Journal Article
• Authors: Duke, Joshua M.; Sassoon, David M.
• Is Part Of: Journal of economic education. Volume 48:Issue 2(2017)
• Page Start: 65
• Page End: 73
• Publication Date: 2017-04-03
• Subjects: Environmental policy -- external cost -- gas tax -- problem-based learning; H21 -- H22 -- H23 -- Q48 -- Q52 -- Q58; Economics -- Study and teaching -- United States -- Periodicals; 330.071
• DOI: 10.1080/00220485.2017.1285736
• Languages: English
• ISSNs: 0022-0485

Abstract

ABSTRACT: The concept of negative externality is central to the teaching of environmental economics, but corrective taxes are almost always regressive. How exactly might governments return externality-correcting tax revenue to overcome regressivity and not alter marginal incentives? In addition, there is a desire to achieve a double dividend in the use of externality-correcting taxes, that is, to use the revenue to offset existing distortionary taxes, such as those on labor that produce a dead weight loss. In this article, the authors explain a classroom game that was developed for students to understand the theory of externalities, taxation dead weight loss, and regressivity. Then, the problem helps students explore the actual design of a policy that satisfies the double dividend hypothesis and corrects for regressivity.