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Green Tax Reform and Competitiveness

  • Erkki Koskela
  • Hans-Werner Sinn
  • Ronnie Schöb

This paper studies a revenue-neutral green tax reform that substitutes energy for wage taxes in an open economy with unemployment. As long as the labour tax rate exceeds the energy tax rate, such a reform will increase employment, reduce the domestic firms' unit cost of production and hence increase international competitiveness and output of the economy. The driving force behind these results is the technological substitution process that a green tax reform will bring about. 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. Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2001.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/1468-0475.00025
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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 2 (2001)
Issue (Month): 1 (02)
Pages: 19-30

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Handle: RePEc:bla:germec:v:2:y:2001:i:1:p:19-30
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  1. Bovenberg, A.L. & de Mooij, R.A., 1994. "Environmental levies and distortionary taxation," Other publications TiSEM 4b32deaa-ec2f-4de7-b59b-9, School of Economics and Management.
  2. Erkki Koskela & Ronnie Schöb & Hans-Werner Sinn, 1998. "Pollution, Factor Taxation and Unemployment," International Tax and Public Finance, Springer, vol. 5(3), pages 379-396, July.
  3. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-39, December.
  4. repec:ner:tilbur:urn:nbn:nl:ui:12-152985 is not listed on IDEAS
  5. Koskela, Erkki & Schob, Ronnie, 1999. "Alleviating unemployment:: The case for green tax reforms," European Economic Review, Elsevier, vol. 43(9), pages 1723-1746, October.
  6. Wolfram Richter & Kerstin Schneider, 2001. "Taxing Mobile Capital with Labor Market Imperfections," International Tax and Public Finance, Springer, vol. 8(3), pages 245-262, May.
  7. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
  8. 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.
  9. 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.
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