The primary purpose of this study is to investigate the possibility of securing economic growth and improving environmental quality simultaneously by taking a static general equilibrium approach. Implementation of such policy is initiated by means of cutting environmentally unfriendly subsidies to water sector. The revenue from the reduction of subsidies is associated with indirect taxes in production sectors, which consequently reduces indirect tax rates. The study has revealed a type of double dividend effect: reduction of water supply and increase of gross domestic products (GDP). The GDP changes 0.299%～0.561% according to variations of elasticities and the way revenue is linked with indirect taxes applied to scenarios. Meanwhile, the impacts of cutting subsidies in the water sector result in the significant increase of water sector prices and the reduction of water sector output, respectively. The output reduction is proportional to values of elasticity utilized; starting at 10% for zero up to 60%. Several policy implications can be inferred from the results of this study. Taking in account the long-term effects of the subsidy-cut policy, the study predicts more output reduction in the water sector since, economically-speaking, long-term elasticities are larger than the short-term ones, like that in the present study. Hence, a current water policy that is under-priced, so as to allow over-consumption, should be changed in order for the society to achieve economic growth and improve environmental quality.