Green Tax Reform and Competitiveness

Erkki Koskela, Ronnie Schöb and Hans-Werner Sinn
Authors registered in the RePEc Author Service: Ronnie Schoeb

No 2089, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper develops a model of a small open economy that produces an export good with domestic labour and imported energy and is stuck in an unemployment situation resulting from an excessive fixed net-of-tax wage rate. We study a revenue-neutral green tax reform that substitutes energy for wage taxes. A moderate green tax reform will boost employment, improve welfare and increase the economy's competitiveness. The driving force behind these results is the technological substitution process that a green tax reform will bring about by inducing the producers to substitute labour for energy as factors of production. The resulting reduction in unemployment is welfare increasing since energy, which the country has to buy at its true national opportunity cost, is replaced with labour, whose price is above its social opportunity cost. As long as the labour tax rate exceeds the resource tax rate, a revenue-neutral green-tax reform will reduce the domestic firms' unit cost of production and hence increase international competitiveness and output of the economy.

Keywords: Competitiveness; green tax reform; Involuntary Unemployment (search for similar items in EconPapers)
JEL-codes: H20 J51 (search for similar items in EconPapers)
Date: 1999-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Green Tax Reform and Competitiveness (2001)
Journal Article: Green Tax Reform and Competitiveness (2001)
Working Paper: Green tax reform and competitiveness (2001)
Working Paper: Green Tax Reform and Competitiveness (2000)
Working Paper: Green Tax Reform and Competitiveness (1999)
Working Paper: Green Tax Reform and Competitiveness (1998)
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