Pollution, Factor Taxation and Unemployment

International Tax and Public Finance, Vol. 5, Issue 3, 1998

Posted: 14 Apr 1998  

Erkki Koskela

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute); Bank of Finland - Research Department; IZA Institute of Labor Economics

Ronnie Schöb

Freie Universitaet Berlin; CESifo (Center for Economic Studies and Ifo Institute)

Hans-Werner Sinn

CESifo (Center for Economic Studies and Ifo Institute); National Bureau of Economic Research (NBER); Ludwig Maximilian University of Munich

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Abstract

When consumers choose between clean and dirty goods and the labor 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 labor 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 labor and energy is greater than one, equal to one or not too far below one.

JEL Classification: H20, J51

Suggested Citation

Koskela, Erkki and Schöb, Ronnie and Sinn, Hans-Werner, Pollution, Factor Taxation and Unemployment. International Tax and Public Finance, Vol. 5, Issue 3, 1998. Available at SSRN: https://ssrn.com/abstract=75112

Erkki Koskela (Contact Author)

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland
+358 9 191 8894 (Phone)
+358 9 191 8877 (Fax)

HOME PAGE: http://www.cesifo.de/servlet/page?_pageid=56&_dad=portal30&_schema=PORTAL30&pa_id=7298

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bank of Finland - Research Department ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

IZA Institute of Labor Economics

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

Ronnie Schöb

Freie Universitaet Berlin ( email )

Boltzmannstraße 20
Berlin, Berlin 14195
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Hans-Werner Sinn

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany
+49 89 9224 1276 (Phone)
+49 89 9224 1409 (Fax)

HOME PAGE: http://www.cesifo.de

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Ludwig Maximilian University of Munich

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Munich, Bavaria 80539
Germany

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