Environmental Tax Reform in a Small Open Economy with Structural Unemployment

Posted: 30 May 2000

See all articles by Bertil Holmlund

Bertil Holmlund

Uppsala University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Ann-Sofie Kolm

Uppsala University; Institute for Labour Market Policy Evaluation

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Abstract

The paper examines the effects of an environmental tax reform in a small open economy with decentralized wage bargaining, monopolistically competitive firms and equilibrium unemployment. There is a tradable and a non-tradable sector and all firms use labour as well as an imported polluting factor of production ("energy"). A key result is that a tax on energy, recycled to reduce the payroll tax, reduces unemployment if there is a tradable sector wage premium. However, even if energy taxes may boost employment, welfare will not necessarily improve. Numerical simulations suggest that energy taxes in general provide an environmental dividend but also reduce real GDP.

Keywords: environmental tax reform, wage bargaining, equilibrium unemployment

JEL Classification: J30, J64, K32

Suggested Citation

Holmlund, Bertil and Kolm, Ann-Sofie, Environmental Tax Reform in a Small Open Economy with Structural Unemployment. International Tax and Public Finance, Vol. 7, Issue 3, May 2000 . Available at SSRN: https://ssrn.com/abstract=228427

Bertil Holmlund (Contact Author)

Uppsala University - Department of Economics ( email )

SE-75120 Uppsala
Sweden
+46 18 471 1122 (Phone)
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HOME PAGE: http://www.nek.uu.se/faculty/holmlund/index.html

CESifo (Center for Economic Studies and Ifo Institute)

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IZA Institute of Labor Economics

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Ann-Sofie Kolm

Uppsala University ( email )

Department of Economics P.O. Box 513
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+46 18 4711478 (Fax)

Institute for Labour Market Policy Evaluation ( email )

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751 20 Uppsala
Sweden
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