Pollution and Labor Market Search Externalities Over the Business Cycle
John Gibson and
No 27445, NBER Working Papers from National Bureau of Economic Research, Inc
We study the relationship between unemployment, environmental policy, and business cycles. We develop a dynamic stochastic general equilibrium real business cycle model that includes both a pollution externality and congestion externalities from labor market search frictions, which generate unemployment. We consider two policies to address the market failures: an emissions tax and a tax or subsidy on job creation. With both policies present, the efficient outcome can be achieved. When one policy is constrained or absent, we solve for the second best. The absence of a vacancy policy to address the congestion externalities substantially affects the value of the emissions tax, both in steady state and over the business cycle.
JEL-codes: E24 E32 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ene, nep-env and nep-mac
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Published as John Gibson & Garth Heutel, 2023. "Pollution and Labor Market Search Externalities Over the Business Cycle," Journal of Economic Dynamics and Control, .
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