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From Shadow to Green: Linking Environmental Fiscal Reforms and the Informal Economy

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  • Mikel González-Eguino
  • Anil Markandya
  • Marta Escapa

Abstract

In the past few decades many papers have analysed in some depth different environmental tax reforms and the double dividend hypothesis, i.e. the possibility of improving not only the environment but also the economy through the reduction of distortions in the tax system. Recently, more stress has been placed on testing empirically what effects a reduction in labour taxes may have on unemployment when accompanied by a carbon or other environmental tax. However, such studies have not modelled the effects of the presence of a shadow economy, even though informal markets account for a significant and growing part of GDP in many developed economies. This paper analyses this link using an Applied General Equilibrium model for the case of Spain, which has one of the highest unemployment rates in the world and one of the biggest informal economies of any wealthy country. We conclude that our analysis strengthens the case for an environmental tax reform in Spain if revenues from a CO2 tax are recycled via a labour tax reduction.

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Bibliographic Info

Paper provided by BC3 in its series Working Papers with number 2012-03.

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Date of creation: Mar 2012
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Publication status: Published
Handle: RePEc:bcc:wpaper:2012-03

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Keywords: Environmental fiscal reform; double dividend hypothesis; shadow economy; unemployment; general equilibrium analysis; Spain;

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References

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  1. David G. Blanchflower & Andrew J. Oswald, 1989. "The Wage Curve," NBER Working Papers 3181, National Bureau of Economic Research, Inc.
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  24. Schneider, Friedrich, 2011. "The Shadow Economy and Shadow Economy Labor Force: What Do We (Not) Know?," IZA Discussion Papers 5769, Institute for the Study of Labor (IZA).
  25. González-Eguino, Mikel, 2011. "The importance of the design of market-based instruments for CO2 mitigation: An AGE analysis for Spain," Ecological Economics, Elsevier, vol. 70(12), pages 2292-2302.
  26. Christopher Bajada & Friedrich Schneider, 2009. "Unemployment and the Shadow Economy in the oecd," Revue économique, Presses de Sciences-Po, vol. 60(5), pages 1033-1067.
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  28. Anil Markandya & Mikel González-Eguino & Marta Escapa, 2012. "Environmental Fiscal Reform and Unemployment in Spain," Working Papers 2012-04, BC3.
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Cited by:
  1. Xaquín Garcia-Muros & Mercedes Burguillo & Mikel Gonzalez-Eguino & Desiderio Romero-Jordán, 2014. "Local air pollution and global climate change taxes: a distributional analysis," Working Papers 2014-01, BC3.
  2. Kurt Kratena & Mark Sommer, 2014. "Labour Market Policy and Environmental Fiscal Devaluation: A Cure for Spain in the Aftermath of the Great Recession?," WIFO Working Papers 476, WIFO.

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