Environmental taxation, employment and public spending in developing countries
LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library
This paper investigates the consequences of environmental tax reforms for unemployment and welfare, in the case of developing countries with a large informal sector, rural-urban migration, and three different assumptions about public spending: (1) as part of a revenue-neutral policy, (2) fixed, and (3) varying endogenously. Under the indexation of unemployment benefits and informal-sector income that give rise to a double dividend, a lower level of public spending is associated with a smaller negative impact on the after-tax income of households and a higher increase in employment. These policies, however, still lead to a reduction in social welfare; even more so in the case of endogenous public spending, although it is associated with a higher increase in employment and a smaller reduction in private-sector incomes. The model implies that complementary policy, in terms of lower public spending, is unlikely to be socially acceptable, and does not support the case for a green tax reforms in developing countries.
Keywords: informal sector; matching frictions; rural-urban migration; pollution taxes; double dividend; Centre for Climate Change Economics and Policy (search for similar items in EconPapers)
JEL-codes: H20 H23 H30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env and nep-iue
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Published in Environmental and Resource Economics, 16, February, 2018. ISSN: 0924-6460
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Journal Article: Environmental Taxation, Employment and Public Spending in Developing Countries (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:86378
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