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Environmental tax reform and income distribution with imperfect heterogeneous labour markets

Diane Aubert and Mireille Chiroleu-Assouline ()

European Economic Review, 2019, vol. 116, issue C, 60-82

Abstract: This paper investigates the distributional and efficiency consequences of an environmental tax reform that distributes the revenue from a green tax according to varying labour tax rates. We build a general equilibrium model with heterogeneous workers, imperfect labour markets (search and match), and pollution consumption externalities. Preferences are non-homothetic (Stone–Geary utility) to take into account the potential regressivity of green taxes (the polluting good is assumed to be a necessary good). If the reform appears regressive, the gains from the double dividend can achieve Pareto improvement, using a redistributive non-linear income tax if the redistribution is not too great initially. Increasing progressivity influences the unemployment rate and can moderate the trade-off between equity and efficiency. We finally provide numerical illustrations for France and conduct sensitivity analysis.

Keywords: Environmental tax reform; Heterogeneity; Unemployment; Welfare analysis; Tax progressivity (search for similar items in EconPapers)
JEL-codes: D62 D63 H23 Q52 Q58 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: Environmental Tax Reform and Income Distribution with Imperfect Heterogeneous Labour Markets (2019)
Working Paper: Environmental Tax Reform and Income Distribution with Imperfect Heterogeneous Labour Markets (2017) Downloads
Working Paper: Environmental Tax Reform and Income Distribution with Imperfect Heterogeneous Labor Markets (2017) Downloads
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