A Computable General Equilibrium model is used to simulate the effects of an
Environmental Tax Reform in a regional economy (Andalusia, Spain). The reform
involves imposing a tax on CO2 or SO2 emissions and reducing the payroll tax of
employers to Social Security or the Income Tax, keeping public deficit unchanged. This
approach is capable of testing the so-called double dividend hypothesis, according to
which, this kind of reform is likely to improve both environmental and nonenvironmental welfare. In the economy under analysis, an employment double dividend
arises when the payroll tax is reduced and, if CO2 emissions are selected as
environmental target, a (limited) strong double could be also obtained. No double
dividend appears when Income Tax is reduced to compensate the environmental tax
