Involuntary Unemployment and Environmental Policy: The Double Dividend Hypothesis

Abstract

An environmental tax reform might bring about gains over and above improved environmental quality. In particular, if tax revenues from environmental taxes are used to reduce the tax on wage income, positive employment effects can result in second-best economies. An efficiency wage model is used to analyze the impact of an ecological tax reform on involuntary unemployment. The government controls emissions by selling emission permits. Employment of labor and wages are determined endogenously. Conditions are identified under which an environmental tax reform reduces unemployment and increases welfare.

Imperfect Competition, Labour Market Distortions, and the Double Dividend Hypothesis. Theory and Evidence from Italian Data

“…Furthermore, we want to be in line with earlier double-dividend models in closed economies such as Bovenberg and de Mooij (1994a), van der Ploeg (1994), Nielsen Pedersen andSorensen (1995), Schneider (1997), Koskela and Schöb (1999), and assess whether the impact of imperfect competition in the goods market, which has not been explored in the above studies, may yield different results.…”

“…The consequences of this reform on employment and welfare are analysed and a double dividend effect is typically not found. More recently some studies which have addressed the issue of wage rigidities and involuntary unemployment (see, for example, Nielsen, Pedersen and Sørensen, 1995;Strand, 1995;Bovenberg and van der Ploeg, 1996;Holmlund and Kolm, 1997;Schneider, 1997;Koskela, Schöb and Sinn, 1998;and Koskela and Schöb, 1999) are typically able to generate an employment double dividend. For example, Koskela and Schöb (1999) employ a right to manage model of the labour market and find an increase in employment if unemployment benefits are taxed at a lower rate than wage-income.…”

The double-dividend hypothesis of environmental taxes: a survey

“…Bovenberg and van der Ploeg (1998b), using a search theoretic framework, found a positive employment effect for a revenue-neutral green tax reform which both increases the tax on a polluting factor of production and succeeds in shifting the tax burden away from labour income to transfer income. In an efficiency wage model, Schneider (1997) also shows that employment may increase due to an increase in green taxes. 14 Koskela and Schöb (1999) apply a model with endogenous wage negotiations between trade unions and firms.…”

Energy Taxes and Employment: A Do-it-yourself Simulation Model

“…This is the normal procedure employed in the theoretical literature (see e.g. Bovenberg and de Mooij (1994a,b) or Schneider (1997)). Although our model is a radical simplification of the real economy, it is still so complicated that an analytical solution would not deliver any results for a sound economic interpretation.…”