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Recycling of Eco-Taxes, Labor Market Effects and the True Cost of Labor- a CGE Analysis

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  • Conrad, Klaus
  • Loschel, Andreas

Abstract

Computable general equilibrium (CGE) modeling has provided a number of important insights about the interplay between environmental tax policy and the pre-existing tax system. In this paper, we emphasize that a labor market policy of recycling tax revenues from an environmental tax to lower employers’ non-wage labor cost depends on how the costs of labor are modeled. We propose an approach, which combines neoclassical substitutability and fixed factor proportions. Our concept implies a user cost of labor which consists of the market price of labor plus the costs of inputs associated with the employment of a worker. We present simulation results based on a CO2 tax and the recycling of its revenues to reduce the non-wage labor cost. One simulation is based on the market price of labor and the other on the user cost of labor. We found a double dividend under the first approach but not under the second one.

Suggested Citation

  • Conrad, Klaus & Loschel, Andreas, 2005. "Recycling of Eco-Taxes, Labor Market Effects and the True Cost of Labor- a CGE Analysis," Journal of Applied Economics, Universidad del CEMA, vol. 8(2), pages 1-20, November.
    • Handle: RePEc:ags:jaecon:37115
    DOI: 10.22004/ag.econ.37115
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    Cited by:

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    2. Chung-Fu Lai, 2016. "Examining the Double Dividend Effect of Energy Tax with the Overlapping Generations Model," International Journal of Energy Economics and Policy, Econjournals, vol. 6(1), pages 53-57.
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    4. Maruf Rahman Maxim & Kerstin Zander, 2019. "Can a Green Tax Reform Entail Employment Double Dividend in European and non-European Countries? A Survey of the Empirical Evidence," International Journal of Energy Economics and Policy, Econjournals, vol. 9(3), pages 218-228.
    5. Chung-Huang Huang & Wan-Ling Chou, 2012. "Dividends of Environmental Tax with Endogenized Time and Medical Expenditures," EcoMod2012 4307, EcoMod.
    6. Francisco Miguel-Vélez & Manuel Cardenete Flores & Jesús Pérez-Mayo, 2009. "Effects of the tax on retail sales of some fuels on a regional economy: a computable general equilibrium approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(3), pages 781-806, September.
    7. Maruf Rahman Maxim, 2020. "Environmental fiscal reform and the possibility of triple dividend in European and non-European countries: evidence from a meta-regression analysis," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(4), pages 633-656, October.
    8. Copenhagen Economics, 2008. "Reduced VAT for environmentally friendly products," Taxation Studies 0025, Directorate General Taxation and Customs Union, European Commission.
    9. Freire-González, Jaume, 2018. "Environmental taxation and the double dividend hypothesis in CGE modelling literature: A critical review," Journal of Policy Modeling, Elsevier, vol. 40(1), pages 194-223.
    10. Kenneth A. Castellanos & Garth Heutel, 2019. "Unemployment, Labor Mobility, and Climate Policy," NBER Working Papers 25797, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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