ENVIRONMENTAL FISCAL POLICIES AND THE DOUBLE DIVIDEND HYPOTHESIS: A DYNAMIC CGE-OLG ANALYSIS  IN TUNISIA

Oussama  Zaghdoud

doi:10.2478/eoik-2025-0029

Authors

Oussama Zaghdoud Department of Economics, College of Business Administration, King Faisal University, Al-Ahsa 31982, Saudi Arabia; Department of Economics, High School of Economic and Commercial Sciences of Tunis, 4 Rue Abou Zakaria El Hafsi, 1089 Montfleury, University of Tunis, Tunisia

DOI:

https://doi.org/10.2478/eoik-2025-0029

Keywords:

double dividend, environmental taxes, economic growth, environmental sustainability, computable general equilibrium model

Abstract

The nexus between environmental sustainability and economic growth poses a considerable challenge for developing economies. En vironmental fiscal policies offer potential solutions, yet their efficacy remains underexplored in nations such as Tunisia. This study exam ines the implications of these policies and identifies the conditions for achieving the double-dividend hypothesis in Tunisia. Using a dynamic computable general equilibrium model with overlapping generations (CGE-OLG), calibrated with Tunisian economic data, we investigate how these policies can facilitate the decoupling of economic growth from environmental degradation. Our simulation results demonstrate that reallocating environmental tax revenues to non-environmental public expenditures while allowing the pollution abatement budget to fluctuate with economic activity fails to generate a double divi dend for the economy. However, under fiscal neutrality, redistributing these revenues to the pollution abatement sector achieves a double dividend: (i) an environmental dividend, represented by an apprecia ble improvement in environmental quality indicators by 1.8%, and (ii) an economic dividend, reflected in a notable increase in life-cycle consumption patterns for skilled and unskilled workers of 2.89% and 0.56%, respectively. These results suggest that a revenue-neutral en vironmental fiscal reform focused on developing the pollution abate ment sector could effectively decouple Tunisia’s economic growth from environmental degradation while enhancing sustainable devel opment. The results offer critical guidance for policymakers seeking to implement environmental fiscal reforms in Tunisia and similar de veloping nations.

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