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Climate policies, labor markets, and macroeconomic outcomes in emerging economies

Author

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  • Finkelstein Shapiro, Alan
  • Nuguer, Victoria

Abstract

We study the labor market and macroeconomic effects of carbon taxation in the energy sector in emerging economies. We build a macro-search model with pollution externalities, endogenous green-energy adoption, salaried-firm entry, and endogenous self-employment. The carbon tax increases green technology adoption in the energy sector and the share of green energy. Under a baseline revenue recycling scheme that transfers the carbon tax revenue to households, the tax raises energy prices, leading to a reduction in salaried firm and job creation, and an increase in self-employment and labor force participation that ultimately generate welfare and GDP losses. Additional model experiments show that the presence of self-employment as a distinct employment category significantly amplifies these losses. However, endogenous green technology adoption can drastically limit the magnitude of these losses. Using the carbon tax revenue to support green energy investment can deliver a decline in energy prices and net welfare and output gains while reducing self-employment.

Suggested Citation

  • Finkelstein Shapiro, Alan & Nuguer, Victoria, 2026. "Climate policies, labor markets, and macroeconomic outcomes in emerging economies," Journal of Development Economics, Elsevier, vol. 182(C).
    • Handle: RePEc:eee:deveco:v:182:y:2026:i:c:s0304387826000659
    DOI: 10.1016/j.jdeveco.2026.103782
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    Keywords

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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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