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Green Tax Reform and Competitiveness

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Author Info
Erkki Koskela
Ronnie Schob
Hans-Werner Sinn

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Abstract

This paper develops a model of a small open economy that produces an export good with domestic labour and imported energy and is stuck in an unemployment situation resulting from an excessive fixed net-of-tax wage rate. We study a revenue-neutral green tax reform that substitutes energy for wage taxes. A moderate green tax reform will boost employment, improve welfare, and increase the economy's competitiveness. The driving force behind these results is the technological substitution process that a green tax reform will bring about by inducing the producers to substitute labour for energy as factors of production. The resulting reduction in unemployment is welfare increasing since energy, which the country has to buy at its true national opportunity cost, is replaced with labour, whose price is above its social opportunity cost. As long as the labour tax rate exceeds the resource tax rate, a revenue-neutral green-tax reform will reduce the domestic firms' unit cost of production and hence increase international competitiveness and output of the economy.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6922.

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Date of creation: Feb 1999
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Publication status: published as German Economic Review, forthcoming.
Handle: RePEc:nbr:nberwo:6922

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Find related papers by JEL classification:
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Juha Honkatukia, 2000. "Arvioita energiaverotuksen taloudellisista vaikutuksista Suomessa," Discussion Papers 719, The Research Institute of the Finnish Economy. [Downloadable!]
  2. Rita Asplund, 2000. "Unemployment among Finnish Manufacturing Workers. Who Gets Unemployed and from Where?," Discussion Papers 711, The Research Institute of the Finnish Economy. [Downloadable!]
  3. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-39, December. [Downloadable!] (restricted)
    Other versions:
  4. Erkki Koskela & Ronnie Schoeb & Hans-Werner Sinn, 1998. "Pollution, Factor Taxation and Unemployment," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  5. Bovenberg, A Lans & de Mooij, Ruud A, 1997. "Environmental Levies and Distortionary Taxation: Reply," American Economic Review, American Economic Association, vol. 87(1), pages 252-53, March. [Downloadable!] (restricted)
  6. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November. [Downloadable!] (restricted)
  7. Pereira, Pedro Telhado & Martins, Pedro Silva, 2000. "Does Education Reduce Wage Inequality? Quantile Regressions Evidence from Fifteen European Countries," IZA Discussion Papers 120, Institute for the Study of Labor (IZA). [Downloadable!]
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  8. Rita Asplund, 2000. "Private Returns to Education in Finland: Back to Basics," Discussion Papers 720, The Research Institute of the Finnish Economy. [Downloadable!]
  9. Koskela, Erkki & Schöb, Ronnie & Sinn, Hans-Werner, 1999. "Green Tax Reform and Competitiveness," CEPR Discussion Papers 2089, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Esa Viitamo, 2000. "Metsäklusterin palvelut - kilpailukykyanalyysi," Discussion Papers 727, The Research Institute of the Finnish Economy. [Downloadable!]
  11. Markus Paukku, 2000. "European Union and United States trade relations," Discussion Papers 723, The Research Institute of the Finnish Economy. [Downloadable!]
  12. Erkki Koskela & Ronnie Schoeb, 1996. "Alleviating Unemployment: The Case for Green Tax Reforms," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH.
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  13. Hannu Hernesniemi, 2000. "Evaluation of Estonian Innovation System," Discussion Papers 722, The Research Institute of the Finnish Economy. [Downloadable!]
  14. Heli Koski, 2000. "Feedback Mechanisms in the Evolution of Networks: The Installed User Base and Innovation in the Communications Sector," Discussion Papers 725, The Research Institute of the Finnish Economy. [Downloadable!]
  15. Petri Böckerman & Mika Maliranta, 2001. "Regional disparities in gross job and worker flows in Finland," Finnish Economic Papers, Finnish Society for Economic Research, vol. 14(2), pages 84-103, Autumn. [Downloadable!]
  16. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-89, September. [Downloadable!] (restricted)
  17. Heli Koski, 2000. "Regulators and Competition Spurring or Retarding Innovation in the Telecommunications Sector?," Discussion Papers 724, The Research Institute of the Finnish Economy. [Downloadable!]
  18. Erkki Koskela & Markku Ollikainen, 2000. "Optimal Forest Conservation: Competitiveness Versus Green Image Effects," Discussion Papers 728, The Research Institute of the Finnish Economy. [Downloadable!]
  19. Sinimaaria Ranki, 2000. "Does the Euro Exchange Rate Matter ?," Discussion Papers 729, The Research Institute of the Finnish Economy. [Downloadable!]
  20. Wolfram Richter & Kerstin Schneider, 2001. "Taxing Mobile Capital with Labor Market Imperfections," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Eva M. Meyersson & Trond Petersen & Rita Asplund, 2000. "Pay, Risk, and Productivity. The Case of Finland, 1980-1996," Discussion Papers 743, The Research Institute of the Finnish Economy. [Downloadable!]
  2. Ziesemer,Thomas, 2003. "Green Tax Reform and the Laffer curve in labour market models: A brief note," Research Memoranda 013, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
  3. Pekka Ilmakunnas & Mika Maliranta, 2001. "The Turnover of Jobs and Workers in a Deep Recession: Evidence from the Finnish Business Sector," Discussion Papers 747, The Research Institute of the Finnish Economy. [Downloadable!]
  4. Erkki Koskela & Matti Virén, 2000. "Is There a Laffer Curve Between Aggregate Output and Public Sector Employment," Discussion Papers 737, The Research Institute of the Finnish Economy. [Downloadable!]
  5. Boeters, Stefan, 2001. "Green tax reform and employment : the interaction of profit and factor taxes," ZEW Discussion Papers 01-45, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
    Other versions:
  6. Sinn, Hans-Werner, 1999. "Inflation and Welfare: Comment on Robert Lucas," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  7. Erkki Koskela & Ronnie Schöb, 2001. "Optimal Factor Income Taxation in the Presence of Unemployment," Discussion Papers 758, The Research Institute of the Finnish Economy. [Downloadable!]
    Other versions:
  8. Ari Hyytinen, 2002. "Loan Market Equilibrium with Difference of Opinion and Imperfect Competition (Revised version)," Discussion Papers 748, The Research Institute of the Finnish Economy. [Downloadable!]
  9. Erkki Koskela & Ronnie Schöb & Hans-Werner Sinn, 2000. "Green Tax Reform and Competitiveness," Discussion Papers 731, The Research Institute of the Finnish Economy. [Downloadable!]
    Other versions:
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