Environmental Taxes Versus Subsidies with Unionized Labor Markets. A Note on the Role of Wage Setting Structure

Vergari Cecilia () and Meccheri Nicola ()
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Vergari Cecilia: Department of Economics and Management, University of Pisa, Pisa, Italy
Meccheri Nicola: Department of Economics and Management, University of Pisa, Pisa, Italy

The B.E. Journal of Economic Analysis & Policy, 2025, vol. 25, issue 4, 1183-1196

Abstract: In the context of a unionized labor market and green consumerism, this paper analyzes, within a vertically differentiated duopoly, which environmental policy – taxes or subsidies – is more efficient in reducing polluting emissions and enhancing social welfare. The structure of wage setting proves to be crucial in determining final outcomes. Specifically, under firm-specific unions with decentralized wage setting, a subsidy policy is more efficient than a tax policy. Conversely, when an industry-wide union sets wages centrally, the tax policy outperforms the subsidy policy.

Keywords: environmental taxes versus subsidies; environmental product quality; wage setting structure; vertical differentiation (search for similar items in EconPapers)
JEL-codes: J51 L13 L15 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1515/bejeap-2025-0013

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