Environmental Tax Reform in a Small Open Economy with Structural Unemployment

Posted: 12 Feb 1997

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

Multiple version iconThere are 2 versions of this paper

Date Written: January 1997

Abstract

The paper examines the effects of an environmental tax reform in a model of a small open economy with decentralized wage bargaining and monopolistically competitive firms. The economy includes a tradable sector as well as a non-tradable sector and features unemployment in general equilibrium. Firms in both sectors use labor and an imported polluting factor of production ("energy"). A tax on energy, recycled to reduce the payroll tax, will in general affect equilibrium unemployment in this economy. The effect works through a reallocation of employment from the tradable to the non-tradable sector. Total employment increases if workers in the tradable sector receive a wage premium relative to workers in the non-tradable sector. The sectoral relative wage is determined by the relative bargaining power of the unions and by parameters of preferences and technology. Parameterized versions of the model suggest that the tax reform has small effects on employment and that it typically reduces real GDP.

JEL Classification: J30, J64, K32

Suggested Citation

Holmlund, Bertil and Kolm, Ann-Sofie, Environmental Tax Reform in a Small Open Economy with Structural Unemployment (January 1997). Available at SSRN: https://ssrn.com/abstract=3721

Bertil Holmlund (Contact Author)

Uppsala University - Department of Economics ( email )

SE-75120 Uppsala
Sweden
+46 18 471 1122 (Phone)
+46 18 471 1478 (Fax)

HOME PAGE: http://www.nek.uu.se/faculty/holmlund/index.html

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ann-Sofie Kolm

Uppsala University ( email )

Department of Economics P.O. Box 513
SE-751 20 Uppsala
Sweden
+46 18 4711131 (Phone)
+46 18 4711478 (Fax)

Institute for Labour Market Policy Evaluation ( email )

Box 513
751 20 Uppsala
Sweden
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+46 18 471 7071 (Fax)

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