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Green Tax Reform and Two-Component Unemployment: Double Dividend or Double Loss?

  • Max Albert
  • Jürgen Meckl

The double-dividend argument (as used in political debates) addresses worries that a green tax may lead to higher unemployment when wages are inflexible. As protection against this possibility, it is proposed to use the green-tax proceeds to reduce the total tax burden of labor. Ideally, this protects the environment and reduces unemployment (double dividend). However, even if the main cause of unemployment is a minimum wage, an additional efficiency-wage component (which explains certain stylized facts) can dominate employment effects. In the worst case, this leads to a "double loss," which is impossible under pure minimum-wage unemployment.

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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 157 (2001)
Issue (Month): 2 (June)
Pages: 265-

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200106)157:2_265:gtratu_2.0.tx_2-1
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  1. Bovenberg, A.L. & van der Ploeg, F., 1993. "Optimal taxation, public goods and environmental policy with involuntary unemployment," Discussion Paper 1993-77, Tilburg University, Center for Economic Research.
  2. Koskela, Erkki & Schob, Ronnie, 1999. "Alleviating unemployment:: The case for green tax reforms," European Economic Review, Elsevier, vol. 43(9), pages 1723-1746, October.
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  9. Albert, Max & Meckl, Jürgen, 1997. "Efficiency wages, unemployment and welfare: A trade theorists' guide," Discussion Papers, Series II 348, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  10. A. Bovenberg, 1998. "Environmental Taxes and the Double Dividend," Empirica, Springer, vol. 25(1), pages 15-35, January.
  11. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
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