Computable general equilibrium (CGE) modeling has provided a number of important insights about the interplay between environmental tax policy and the pre-existing tax system. In this paper, we emphasize that a labor market policy of recycling tax revenues from an environmental tax to lower employers? non-wage labor cost depends on how the costs of labor are modeled. We propose an approach which combines neoclassical substitutability and fixed factor proportions. Our concept implies a user cost of labor which consists of the market price of labor plus the costs of inputs associated with the employment of a worker. We present simulation results based on a CO2 tax and the recycling of its revenues to reduce the nonwage labor cost. One simulation is based on the market price of labor and the other on the user cost of labor. We found a double dividend under the first approach but not under the second one.
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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number
02-31.
Find related papers by JEL classification: D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
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.:
Bovenberg, A. Lans & Goulder, Lawrence H., 2002.
"Environmental taxation and regulation,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 23, pages 1471-1545
Elsevier.
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