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Environmental Tax Reform and Income Distribution with Imperfect Heterogeneous Labour Markets

Diane Aubert and Mireille Chiroleu-Assouline ()
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Diane Aubert: ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology in Zürich [Zürich]

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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: Tax progressivity; Welfare analysis; Environmental tax reform; Heterogeneity; Unemployment (search for similar items in EconPapers)
Date: 2019
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-02095150
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Published in European Economic Review, Elsevier, In press, 116, pp.60-82. ⟨10.1016/j.euroecorev.2019.03.006⟩

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Journal Article: Environmental tax reform and income distribution with imperfect heterogeneous labour markets (2019) Downloads
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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