Pollution and labor market search externalities over the business cycle

John Gibson () and Garth Heutel

Journal of Economic Dynamics and Control, 2023, vol. 151, issue C

Abstract: We study the relationship between unemployment, environmental policy, and business cycles. We develop a dynamic stochastic general equilibrium real business cycle model that includes both a pollution externality and congestion externalities from labor market search frictions. These frictions generate unemployment on the extensive margin and affect hours worked on the intensive margin. We consider two policies to address the market failures: an emissions tax and a tax or subsidy on job creation. With both policies present, the efficient outcome can be achieved. When one policy is constrained or absent, we solve for the second best. The absence of a vacancy policy to address the congestion externalities substantially affects the value of the emissions tax, both in steady state and over the business cycle.

Keywords: Environmental policy; Labor market search; Business cycles; Pollution tax; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 E32 Q58 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Pollution and Labor Market Search Externalities Over the Business Cycle (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:151:y:2023:i:c:s0165188923000714

DOI: 10.1016/j.jedc.2023.104665

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