The Impact of Environmental Taxation on Wage Inequality in the Presence of Subsidizing Renewable Energy

Jiancai Pi and Fan Yanwei
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Fan Yanwei: Department of Economics, Nanjing University, Nanjing, P.R. China

The B.E. Journal of Economic Analysis & Policy, 2023, vol. 23, issue 2, 467-496

Abstract: This paper explores how environmental taxation affects wage inequality in the presence of subsidizing renewable energy. It is necessary to take both traditional dirty energy and renewable energy into account. Take the case where the renewable energy sector is more skill-intensive than the traditional energy sector as an example. If the final product sector is more skill-intensive than the whole energy sector, an increment of the output tax in the traditional energy sector will widen wage inequality unambiguously. However, if the final product sector is less skill-intensive than the whole energy sector, an increment of the output tax in the traditional energy sector may narrow down wage inequality when the substitution elasticity between energy and labor in the final product sector is sufficiently large. The interaction between environmental taxation and subsidization on renewable energy plays a key role in the mechanism. We also analyze the relationship between environmental taxation and welfare.

Keywords: environmental taxation; subsidization on renewable energy; wage inequality; welfare (search for similar items in EconPapers)
JEL-codes: J31 O15 Q52 Q58 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/bejeap-2022-0236

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