Abstract:By virtue of general equilibrium model, the paper evaluates the effect on environment tax on small open economy in the "sub-optimum environment" where "distortion" pre-exists, and utilizes the macro economic data of Chongqing Municipality to perform simulation on the model conclusions. As demonstrated by the model analysis results, environmental taxes are favorable to improve environment quality, and meanwhile the original economic distortion is aggravated. Actually, a kind of substitution relation exists between environment and economic efficiency, therefore, it demonstrates that the "double dividend" hyphothesis fails, and the optimum environmental tax under sub-optimum environment is lower than Pigou tax rate. The simulation of the macro economic data of Chongqing municipality demonstrates that environment tax has distinctive influence differences on families and enterprises.