Pollution, Factor Taxation and Unemployment

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

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: When consumers choose between clean and dirty goods and the labour market clears, a green tax reform may not bring about a double dividend in the sense of increasing environmental quality and increasing employment. However, when firms choose between clean and dirty factors of production, and when there is unemployment, such a result is very likely to occur. The paper investigates a model of a monopolistic firm where labour and energy are factors of production and trade unions negotiate the wage rate, accepting some unemployment as a result of aggressive wage demands. It is shown that, in such a framework, a green tax reform will boost employment provided it does not increase the net-of-tax wage rate by too much. This is the case when the elasticity of substitution between labour and energy is greater than one, equal to one or not too far below one.

Date: 1998
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Citations: View citations in EconPapers (38)

Published in International Tax and Public Finance 3 5(1998): pp. 379-396

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Related works:
Journal Article: Pollution, Factor Taxation and Unemployment (1998)
Working Paper: Pollution, Factor Taxation and Unemployment (1998)
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