Environmental Tax Reform in a Small Open Economy with Structural Unemployment

Bertil Holmlund and Ann-Sofie Kolm ()

No 1997:2, Working Paper Series from Uppsala University, Department of Economics

Abstract: The paper examines the effects of an environmental tax reform in a model of a small open economy with decentralised wage bargaining and monopolistically competitive firms. The economy includes a tradable sector as well as a non-tradable sector and features unemployment in general equilibrium. Firms in both sectors use labour and an imported polluting factor of production (”energy”). A tax on energy, recycled to reduce the payroll tax, will in general affect equilibrium unemployment in this economy. The effect works through a reallocation of employment from the tradable to the non-tradable sector. Total employment increases if workers in the tradable sector receive a wage premium relative to workers in the non-tradable sector. The sectoral relative wage is determined by the relative bargaining power of the unions and by parameters of preferences and technology. Parameterised versions of the model suggest that the tax reform has small effects on employment and that it typically reduces real GDP.

Keywords: Environmental tax reform; wage bargaining; equilibrium unemployment (search for similar items in EconPapers)
JEL-codes: H20 J51 J64 Q43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env and nep-ltv
Date: 1998-08-27
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Published in International Tax and Public Finance, 2000, pages 315-333.

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Journal Article: Environmental Tax Reform in a Small Open Economy With Structural Unemployment (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:uunewp:1997_002

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