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Efficient Environmental Taxation Under Worker-Firm Bargaining

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  • Jon Strand

Abstract

We study an economy with free firm entry and unemployment due to firm-worker bargaining over each firm's surplus, and where firms cause pollution that can be reduced by initial investments. An uncompensated increase in the pollution tax reduces pollution but increases unemployment, implying a tradeoff between the two. When tax revenues are used to subsidize either firms' hiring or investments, employment may also increase, creating a ‘double dividend’ from the pollution tax. A pollution tax increase used to subsidize current employment is always less effective than a hiring subsidy, and is totally ineffective when subsidies equal pollution tax revenues for each individual firm. We show that the (hypothetical) pollution tax implementing the first-best solution exceeds the Pigouvian tax. The second-best tax exceeds this first-best tax when we have a double dividend, and is below it when we do not. Copyright Kluwer Academic Publishers 1999

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File URL: http://hdl.handle.net/10.1023/A:1008202802250
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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 13 (1999)
Issue (Month): 2 (March)
Pages: 125-141

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Handle: RePEc:kap:enreec:v:13:y:1999:i:2:p:125-141

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Web page: http://www.springerlink.com/link.asp?id=100263

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Keywords: hiring subsidy; pollution tax; unemployment;

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References

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  1. Bovenberg, A.L. & Ploeg, F. van der, 1994. "Green policies in a small open economy," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152986, Tilburg University.
  2. Schneider, Kerstin, 1997. " Involuntary Unemployment and Environmental Policy: The Double Dividend Hypothesis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 45-49, March.
  3. Strand, J., 1996. "Pollution Taxation and Revenue Recycling Under Monopoly Unions," Memorandum 16/1996, Oslo University, Department of Economics.
  4. Bovenberg, A.L. & Mooij, R.A. de, 1994. "Environmental levies and distortionary taxation," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152985, Tilburg University.
  5. Bovenberg, A Lans & van der Ploeg, Frederick, 1994. " Green Policies and Public Finance in a Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(3), pages 343-63.
  6. Bovenberg, A Lans & van der Ploeg, Frederick, 1998. " Tax Reform, Structural Unemployment and the Environment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(3), pages 593-610, September.
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Citations

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Cited by:
  1. De Borger B., 2006. "Commuting, congestion tolls and noncompetitive labour markets: optimal congestion pricing in a wage bargaining model," Working Papers 2006014, University of Antwerp, Faculty of Applied Economics.
  2. Ronnie Schöb, 2003. "The Double Dividend Hypothesis of Environmental Taxes: A Survey," CESifo Working Paper Series 946, CESifo Group Munich.
  3. Hadjidema, Stamatina & Eleftheriou, Konstantinos, 2010. "Environmental Taxation under Productive Differentials: An Efficiency Analysis," MPRA Paper 21861, University Library of Munich, Germany.
  4. De Borger B. & Wuyts B., 2010. "The structure of the labour market, telecommuting, and optimal peak period congestion tolls: a numerical optimisation model," Working Papers 2010013, University of Antwerp, Faculty of Applied Economics.
  5. Strand, Jon, 1999. "Efficient environmental taxation under moral hazard," European Journal of Political Economy, Elsevier, vol. 15(1), pages 73-88, March.
  6. Schöb, Ronnie, 2009. "Climate policy: choosing the right instrument to reap an additional employment dividend," Discussion Papers 2009/10, Free University Berlin, School of Business & Economics.

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