This paper analyses whether recycling revenues from carbon emission permit auctions can reduce unemployment in the Spanish economy. Spain's deviation from EU's intermediate emission goals is more serious than for most other EU countries, and the unemployment is also well above the EU average. We use a CGE model that includes a matching model with two types of labour, and which allows for different pricing rules and returns-to-scale assumptions. We find that abatement reduces unemployment due to beneficial impacts of recycling the revenue from permit sales. Unemployment is more effectively abated when revenues are used to reduce labour taxes rather than indirect taxes. Contrary to other studies of Europe, we find that the best option is to reduce payroll taxes on skilled labour. This reform is the most successful both in increasing demand and in dampening the supply response to rising wages. All the recycling schemes also generate dividends in terms of welfare, but none offset the abatement costs entirely.
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Paper provided by Oslo University, Department of Economics in its series Memorandum with number
26/2004.
Find related papers by JEL classification: D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
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