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Efficiency Wages, Unemployment, and Environmental Policy

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  • Garth Heutel
  • Xin Zhang

Abstract

We study the incidence of pollution taxes and their impact on unemployment in an analytical general equilibrium efficiency wage model. We find closed-form solutions for the effect of a pollution tax on unemployment, factor prices, and output prices, and we identify and isolate different channels through which these general equilibrium effects arise. An effect arising from the efficiency wage specification depends on the form of the workers' effort function. Numerical simulations further illustrate our results and show that this efficiency wage effect can fully offset the sources-side incidence results found in models that omit it.

Suggested Citation

  • Garth Heutel & Xin Zhang, 2020. "Efficiency Wages, Unemployment, and Environmental Policy," NBER Working Papers 27960, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27960
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    References listed on IDEAS

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    2. Tan, Xiujie & Liu, Yishuang & Dong, Hanmin & Zhang, Zhan, 2022. "The effect of carbon emission trading scheme on energy efficiency: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 506-517.

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    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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