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Recycling of eco-taxes, labor market Effects and the true cost of labor - A CGE analysis

Author

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  • Klaus Conrad

    () (Mannheim University and Centre for European Economic Research (ZEW))

  • Andreas Löschel

    (Mannheim University and Centre for European Economic Research (ZEW))

Abstract

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 non-wage 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.

Suggested Citation

  • Klaus Conrad & Andreas Löschel, 2005. "Recycling of eco-taxes, labor market Effects and the true cost of labor - A CGE analysis," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 259-278, November.
  • Handle: RePEc:cem:jaecon:v:8:y:2005:n:2:p:259-278
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    References listed on IDEAS

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    1. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September.
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    3. Lans Bovenberg, A. & de Mooij, Ruud A., 1994. "Environmental taxes and labor-market distortions," European Journal of Political Economy, Elsevier, vol. 10(4), pages 655-683, December.
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    5. Capros, P. & Georgakopoulos, P. & Zografakis, S. & Proost, S., 1996. "Double dividend analysis: first results of a general equilibrium mode (GEM-E3) linking the EU countries," CORE Discussion Papers RP 1207, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Heinz Welsch, 1996. "Recycling of carbon/energy taxes and the labor market," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 8(2), pages 141-155, September.
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    Cited by:

    1. Chung-Fu Lai, 2016. "Examining the Double Dividend Effect of Energy Tax with the Overlapping Generations Model," International Journal of Energy Economics and Policy, Econjournals, vol. 6(1), pages 53-57.
    2. Dannenberg, Astrid & Mennel, Tim & Moslener, Ulf, 2008. "What does Europe pay for clean energy?--Review of macroeconomic simulation studies," Energy Policy, Elsevier, vol. 36(4), pages 1318-1330, April.
    3. Copenhagen Economics, 2008. "Reduced VAT for environmentally friendly products," Taxation Studies 0025, Directorate General Taxation and Customs Union, European Commission.

    More about this item

    Keywords

    market-based environmental policy; carbon taxes; double dividend; computable general equilibrium modeling;

    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

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