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Environmental taxation, employment and public spending in developing countries

Karlygash Kuralbayeva

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: 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
Date: 2018-02-16
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Published in Environmental and Resource Economics, 16, February, 2018. ISSN: 0924-6460

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http://eprints.lse.ac.uk/86378/ Open access version. (application/pdf)

Related works:
Journal Article: Environmental Taxation, Employment and Public Spending in Developing Countries (2019) Downloads
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