In this paper, we build and analyze a general equilibrium model to evaluate the effects of environment tax reform on a small open economy in a “suboptimal environment” with existing tax distortions. We then use the macroeconomic data from the Chongqing Municipality in China to conduct simulations to empirically test our analytic results. Our main findings include the followings. First, an increase in environmental tax rate can effectively reduce the use of polluting consumer goods by households as well as investment in polluting factors by enterprises. Hence, an increase in environmental tax rate can improve environmental quality and obtain “environmental dividend”. Second, an increase in environmental tax rate can negatively impact employment, family income and economic growth. Hence, there is no “non-environmental dividend” effect. Third, an increased environmental tax rate has both substitution effect and income effect on household consumption. On the one hand, it motivates households to substitute polluting consumer goods with clean consumer goods. On the other hand, it lowers the total consumption level of households. Fourth, we show that the “double dividend” hypothesis on environmental tax is invalid. And the optimal environmental tax under the suboptimal environment is lower than the Pigouvian tax rate. Finally, we discuss the policy implications of our results.

This paper measures the new industrialization level and its development tendency in Chongqing by analytic hierarchy process and grey correlation degree analysis through a specially-constructed evaluation indicator system. As the study demonstrates, the city's longitudinal new industrialization development has presented an inversed-U pattern; when referring to specific sectors, some traditional industries have a relatively high standard in the process of new-industrialization, whilst other emerging and promising ones have a low level. Hence, the paper proposes a plurality of countermeasures and suggestions, with the purpose of providing reference for the implementation of a new industrialization development strategy.