Environmental taxes and productivity: Lessons from Canadian manufacturing

This paper investigates how environmental taxes affect manufacturing productivity by examining British Columbia’s revenue-neutral carbon tax. I develop a new hypothesis, the “Productivity Dividend Hypothesis,” to show that can positively recycling tax revenues reduce corporate income taxes. revenue-recycling increases investment and could raise more than lower diverting resources from production. evaluate this hypothesis using detailed confidential plant-level data. find lowers productivity, although is offset some extent revenue-recycling. For plants, policy generates net gain in productivity.