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Ecological Tax Reform and Unemployment

  • Budzinski, Oliver

The question of a double dividend from revenue-neutral ecological tax reforms (an ecological advantage plus an economic advantage) has recently become a widely discussed topic both in real-world economic policy and in economic theory. The subject has produced many advocates and opponents in the scientific community. This paper examines potential economic dividends from revenue-neutral ecological tax reforms by systematically distinguishing between an efficiency dividend and an employment dividend. Their occurrence is discussed from the viewpoint of two different theoretical approaches: namely, the optimal taxation view and the market process view. According to the optimal taxation view, which dominates recent economic analysis on this subject, an efficiency dividend seems doubtful whereas an employment dividend is likely to occur under specific circumstances (e.g. involuntary unemployment and sub-optimal initial tax system). However, there is a considerable number of unsuitable assumptions which create doubt when questioning how appropriate the use of optimal taxation theory is when discussing real-world ecological tax reforms. The market process view enlarges the analysis by integrating effects on and from competition and innovation. This strengthens the occurrence of an employment dividend in an imperfect world with involuntary unemployment. In this framework the reduction of involuntary unemployment results from declining wage costs which boost labour demand, a shift in the bias of the innovation process, and an evolution of the consumption basket because of changing relative prices.

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Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-251.

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Length: 20 pages
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:han:dpaper:dp-251
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  1. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-89, September.
  2. Terkla, David, 1984. "The efficiency value of effluent tax revenues," Journal of Environmental Economics and Management, Elsevier, vol. 11(2), pages 107-123, June.
  3. Israel M. Kirzner, 1997. "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 60-85, March.
  4. 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.
  5. Hoel, Michael, 1998. " Emission Taxes versus Other Environmental Policies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 79-104, March.
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  7. Bovenberg, A Lans & van der Ploeg, Frederick, 1998. " Tax Reform, Structural Unemployment and the Environment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(3), pages 593-610, September.
  8. Schneider, Kerstin, 1997. " Involuntary Unemployment and Environmental Policy: The Double Dividend Hypothesis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 45-49, March.
  9. 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.
  10. Gebhard Kirchgässner, 1998. "The Double Dividend Debate: Some Comments from a Politico-Economic Perspective," Empirica, Springer, vol. 25(1), pages 37-48, January.
  11. Thorsten Bayindir-Upmann & Matthias G. Raith, 1998. "Should High-Tax Countries Pursue Revenue-Neutral Ecological Tax Reforms?," Working Papers 304, Bielefeld University, Center for Mathematical Economics.
  12. Carraro, Carlo & Galeotti, Marzio & Gallo, Massimo, 1996. "Environmental taxation and unemployment: Some evidence on the 'double dividend hypothesis' in Europe," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 141-181, October.
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  14. Koskela, Erkki & Schöb, Ronnie & Sinn, Hans-Werner, 1998. "Pollution, Factor Taxation and Unemployment," Munich Reprints in Economics 19493, University of Munich, Department of Economics.
  15. Koskela, Erkki & Schob, Ronnie, 1999. "Alleviating unemployment:: The case for green tax reforms," European Economic Review, Elsevier, vol. 43(9), pages 1723-1746, October.
  16. A. Bovenberg, 1998. "Environmental Taxes and the Double Dividend," Empirica, Springer, vol. 25(1), pages 15-35, January.
  17. Gerhard Wegner, 1997. "Economic Policy From an Evolutionary Perspective: A New Approach," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 153(3), pages 485-, September.
  18. John Pezzey & Andrew Park, 1998. "Reflections on the Double Dividend Debate," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(3), pages 539-555, April.
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  20. repec:dgr:kubcen:19948 is not listed on IDEAS
  21. repec:ner:tilbur:urn:nbn:nl:ui:12-73560 is not listed on IDEAS
  22. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer, vol. 2(2), pages 157-183, August.
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  24. 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.
  25. Zimmermann, Klaus W & Gaynor, John D, 1999. " The Double Dividend: Miracle or Fata Morgana?," Public Choice, Springer, vol. 101(1-2), pages 39-58, October.
  26. repec:ner:tilbur:urn:nbn:nl:ui:12-152985 is not listed on IDEAS
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