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Environmental Taxation under Productive Differentials: An Efficiency Analysis

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  • Hadjidema, Stamatina
  • Eleftheriou, Konstantinos

Abstract

In recent years, the pollution tax instrument has become a focus of the environmental policy debate. Many countries are presently considering implementing or increasing the rate of pollution taxes, while pollution abatement subsidies are used by local governments. However, a great part of the literature argues that environmental taxation fails to create a “double-dividend” outcome and leads to a trade off between pollution levels and unemployment. In this context, a simple search and matching model of labour market is developed, where workers are characterized by heterogeneous productive abilities, so as to examine the impact of a pollution tax on employment. Furthermore, an attemption is made in order to determine the efficient level of taxation in the short run, where the assumption of free entry of firms (zero profits) is dropped.

Suggested Citation

  • Hadjidema, Stamatina & Eleftheriou, Konstantinos, 2010. "Environmental Taxation under Productive Differentials: An Efficiency Analysis," MPRA Paper 21861, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:21861
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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