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Efficient Environmental Taxation Under Worker-Firm Bargaining

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  • Strand, J.

Abstract

We study an economy with free firm entry and unemployment due to firm-worker bargaining over each firm's surplus, and where firms cause pollution that can be reduced by initial investments. An uncompensated increase in the pollution tax reduces pollution but increases unemployment, implying a tradeoff between the two. When tax revenues are used to subsidize either firms' hiring or investments, employment may also increase, creating a ‘double dividend’ from the pollution tax. A pollution tax increase used to subsidize current employment is always less effective than a hiring subsidy, and is totally ineffective when subsidies equal pollution tax revenues for each individual firm. We show that the (hypothetical) pollution tax implementing the first-best solution exceeds the Pigouvian tax. The second-best tax exceeds this first-best tax when we have a double dividend, and is below it when we do not. Copyright Kluwer Academic Publishers 1999
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Strand, J., 1995. "Efficient Environmental Taxation Under Worker-Firm Bargaining," Memorandum 19/1995, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:1995_019
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    References listed on IDEAS

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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 1085-1089, September.
    2. Bovenberg, A Lans & van der Ploeg, Frederick, 1994. " Green Policies and Public Finance in a Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(3), pages 343-363.
    3. Strand, Jon, 1998. " Pollution Taxation and Revenue Recycling under Monopoly Unions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(4), pages 765-780, December.
    4. 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.
    5. Bovenberg, A Lans & van der Ploeg, Frederick, 1993. "Green Policies in a Small Open Economy," CEPR Discussion Papers 785, C.E.P.R. Discussion Papers.
    6. 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.
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    Citations

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    Cited by:

    1. Hadjidema, Stamatina & Eleftheriou, Konstantinos, 2010. "Environmental Taxation under Productive Differentials: An Efficiency Analysis," MPRA Paper 21861, University Library of Munich, Germany.
    2. Strand, Jon, 1999. "Efficient environmental taxation under moral hazard," European Journal of Political Economy, Elsevier, vol. 15(1), pages 73-88, March.
    3. repec:kap:iaecre:v:19:y:2013:i:2:p:153-166 is not listed on IDEAS
    4. Spaeter, Sandrine & Verchère, Alban, 2004. "Aléa moral et politiques d’audit optimales dans le cadre de la pollution d’origine agricole de l’eau," Cahiers d'Economie et de Sociologie Rurales (CESR), INRA (French National Institute for Agricultural Research), vol. 71.
    5. DE BORGER, Bruno, "undated". "Commuting, congestion tolls and noncompetitive labour markets: Optimal congestion pricing in a wage bargaining model," Working Papers 2006014, University of Antwerp, Faculty of Applied Economics.
    6. Sandrine Spaeter & Alban Verchère, 2004. "Aléa moral et politiques d’audit optimales dans le cadre de la pollution d’origine agricole de l’eau," Post-Print hal-01201071, HAL.
    7. Ronnie Schöb, 2003. "The Double Dividend Hypothesis of Environmental Taxes: A Survey," CESifo Working Paper Series 946, CESifo Group Munich.
    8. De Borger, Bruno & Wuyts, Bart, 2011. "The structure of the labor market, telecommuting, and optimal peak period congestion tolls: A numerical optimization model," Regional Science and Urban Economics, Elsevier, vol. 41(5), pages 426-438, September.
    9. Sandrine Spaeter & Alban Verchère, 2004. "Aléa moral et politiques d’audit optimales dans le cadre de la pollution d’origine agricole de l’eau," Cahiers d'Economie et Sociologie Rurales, INRA Department of Economics, vol. 71, pages 5-35.
    10. Schöb, Ronnie, 2009. "Climate policy: choosing the right instrument to reap an additional employment dividend," Discussion Papers 2009/10, Free University Berlin, School of Business & Economics.
    11. Stamatina Hadjidema & Konstantinos Eleftheriou, 2013. "A Search Theoretic Approach on Environmental Taxation under Productive Differentials: A Note," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(2), pages 153-166, May.

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    Keywords

    BARGAINING; ENVIRONMENT; TAX POLICY;

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