Effects of carbon taxes in an economy with large informal sector and rural-urban migration

Karlygash Kuralbayeva

No 125, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford

Abstract: I build an equilibrium search and matching model of an economy with an informal sector and rural urban migration to analyze the effects of budget-neutral green tax policy (raising pollution taxes, while cutting payroll taxes) on the labor market. The key results of the paper suggest that when general public spending varies endogenously in response to tax reform and higher energy taxes can reduce the income from self-employed work in the informal sector, green tax policy can produce a triple dividend: a cleaner environment, lower unemployment rate and higher after-tax income of the private sector. This is due to the ability of the government, by employing public spending as an additional policy instrument, to reduce the overall tax burden when an increase in energy tax rates does not exceed some threshold level. Thus governments should employ several instruments if they are concerned with labor market implications of green tax policies.

Keywords: informal sector; matching frictions; pollution taxes; double dividend (search for similar items in EconPapers)
JEL-codes: H20 H23 H30 (search for similar items in EconPapers)
Date: 2013-10-29
New Economics Papers: this item is included in nep-dge, nep-ene, nep-env, nep-iue, nep-mig, nep-pbe and nep-pub
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Citations: View citations in EconPapers (2)

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Working Paper: Effects of carbon taxes in an economy with large informal sector and rural-urban migration (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:oxcrwp:125

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