Recycling of Eco-Taxes, Labor Market Effects and the True Cost of Labor- a CGE Analysis

Klaus Conrad and Andreas Löschel

Journal of Applied Economics, 2005, vol. 8, issue 2, 259-278

Abstract: Computable general equilibrium (CGE) modeling has provided a number of important insights about the interplay between environmental tax policy and the pre-existing tax system. In this paper, we emphasize that a labor market policy of recycling tax revenues from an environmental tax to lower employers' non-wage labor cost depends on how the costs of labor are modeled. We propose an approach, which combines neoclassical substitutability and fixed factor proportions. Our concept implies a user cost of labor which consists of the market price of labor plus the costs of inputs associated with the employment of a worker. We present simulation results based on a CO2 tax and the recycling of its revenues to reduce the non-wage labor cost. One simulation is based on the market price of labor and the other on the user cost of labor. We found a double dividend under the first approach but not under the second one.

Date: 2005
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Journal Article: Recycling of Eco-Taxes, Labor Market Effects and the True Cost of Labor- a CGE Analysis (2005)
Journal Article: Recycling of eco-taxes, labor market Effects and the true cost of labor - A CGE analysis (2005)
Working Paper: Recycling of eco-taxes, labor market effects and the true cost of labor: a CGE analysis (2002)
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DOI: 10.1080/15140326.2005.12040628

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