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GHG Mitigation Policies and Employment: A CGE Analysis with Wage Rigidity and Application to Canada

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  • Yazid Dissou
  • Qian Sun

Abstract

We use a general equilibrium framework to assess the impact of carbon mitigation policies in the presence of labour market rigidities. We analyze the impact of reducing CO 2 emissions in a cap-and-trade system and the implications of different revenue-recycling options. Our results suggest that the policy has a negative impact on employment and welfare when permit revenues are recycled as lump-sum transfers to households. Using the carbon proceeds to reduce payroll tax achieves better outcomes, as the benefits outweigh the pure abatement cost. Moreover, using permit revenues to reduce payroll tax of low-skill workers alone represents the best option.

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Bibliographic Info

Article provided by University of Toronto Press in its journal Canadian Public Policy.

Volume (Year): 39 (2013)
Issue (Month): s2 (August)
Pages: 53-66

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Handle: RePEc:cpp:issued:v:39:y:2013:i:s2:p:53-66

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  1. Dissou, Yazid, 2005. "Cost-effectiveness of the performance standard system to reduce CO2 emissions in Canada: a general equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 27(3), pages 187-207, October.
  2. Bovenberg, A.L. & Goulder, L.H. & Jacobson, M.R., 2006. "Costs of Alternative Environmental Policy Instruments in the Presence of Industry Compensation Requirements," Discussion Paper 2006-127, Tilburg University, Center for Economic Research.
  3. Bento, Antonio M. & Jacobsen, Mark, 2007. "Ricardian rents, environmental policy and the `double-dividend' hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 17-31, January.
  4. Williams, Roberton III, 2002. "Environmental Tax Interactions when Pollution Affects Health or Productivity," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 261-270, September.
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  6. Ian W. H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," NBER Working Papers 5967, National Bureau of Economic Research, Inc.
  7. Goulder, Lawrence H. & Parry, Ian W. H. & Williams III, Roberton C. & Burtraw, Dallas, 1999. "The cost-effectiveness of alternative instruments for environmental protection in a second-best setting," Journal of Public Economics, Elsevier, vol. 72(3), pages 329-360, June.
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  12. Rivers, Nic, 2010. "Impacts of climate policy on the competitiveness of Canadian industry: How big and how to mitigate?," Energy Economics, Elsevier, vol. 32(5), pages 1092-1104, September.
  13. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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  15. CĂ©line Guivarch & Renaud Crassous & Olivier Sassi & Stephane Hallegatte, 2011. "The costs of climate policies in a second best world with labour market imperfections," Post-Print halshs-00724487, HAL.
  16. Parry, Ian & Bento, Antonio, 1999. "Tax deductions, environmental policy, and the"double dividend"hypothesis," Policy Research Working Paper Series 2119, The World Bank.
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