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Pollution and Labor Market Search Externalities Over the Business Cycle

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  • John Gibson
  • Garth Heutel

Abstract

We study the relationship between unemployment, environmental policy, and business cycles. We develop a dynamic stochastic general equilibrium real business cycle model that includes both a pollution externality and congestion externalities from labor market search frictions, which generate unemployment. We consider two policies to address the market failures: an emissions tax and a tax or subsidy on job creation. With both policies present, the efficient outcome can be achieved. When one policy is constrained or absent, we solve for the second best. The absence of a vacancy policy to address the congestion externalities substantially affects the value of the emissions tax, both in steady state and over the business cycle.

Suggested Citation

  • John Gibson & Garth Heutel, 2020. "Pollution and Labor Market Search Externalities Over the Business Cycle," NBER Working Papers 27445, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:27445
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    Cited by:

    1. Alessandro Ferrari & Valerio Nispi Landi, 2022. "Toward a green economy: the role of central bank's asset purchases," Temi di discussione (Economic working papers) 1358, Bank of Italy, Economic Research and International Relations Area.
    2. Barbara Annicchiarico & Stefano Carattini & Carolyn Fischer & Garth Heutel, 2022. "Business Cycles and Environmental Policy: A Primer," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 3(1), pages 221-253.
    3. Eric Jondeau & Grégory Levieuge & Jean-Guillaume Sahuc & Gauthier Vermandel, 2023. "Environmental Subsidies to Mitigate Net-Zero Transition Costs," Working papers 910, Banque de France.
    4. Ferrari, Alessandro & Landi, Valerio Nispi, 2022. "Will the green transition be inflationary? Expectations matter," Working Paper Series 2726, European Central Bank.
    5. Eric Jondeau & Gregory Levieuge & Jean-Guillaume Sahuc & Gauthier Vermandel, 2022. "Environmental Subsidies to Mitigate Transition Risk," Swiss Finance Institute Research Paper Series 22-45, Swiss Finance Institute.
    6. Stefano Carattini & Garth Heutel & Givi Melkadze, 2023. "Climate Policy, Financial Frictions, and Transition Risk," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 778-794, December.
    7. Le, Anh H., 2023. "Climate change and carbon policy: A story of optimal green macroprudential and capital flow management," IMFS Working Paper Series 191, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    8. Frederick Ploeg, 2023. "Fiscal Costs of Climate Policies: Role of Tax, Political, and Behavioural Distortions," De Economist, Springer, vol. 171(2), pages 119-137, June.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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