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Green Tax Reform, marginal revenue of wage income taxes, and the wage curve: A brief note

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  • Ziesemer, Thomas

    (MERIT)

Abstract

Schneider (1997) showed that the success of a green tax reform depends crucially on a smallslope of the wage curve of an efficiency wage model in which production occurs using a secondfactor E, energy or emissions. Scholz (1998) revealed that there is a second necessary conditionthat the marginal revenue of the wage income tax is negative. In this note we show that (i) thesetwo conditions are not independent, but rather depend both on the slope of the wage curve; and(ii) if Schneider’s condition of a sufficiently flat wage curve is fulfilled, marginal revenue ofwage income taxes must be negative. By implication, both the green tax reform and the sign ofthe marginal revenue of wage income taxes depend on the slope of the wage curve which allowsto distinguish three cases of a tax reform: a) a double dividend for a very small slope of the wagecurve (Schneider’s case); b) failure of unemployment reduction (Scholz’ case) for a very steepwage curve; c) failure of emission reduction for an intermediate case of a wage curve slope.

Suggested Citation

  • Ziesemer, Thomas, 2002. "Green Tax Reform, marginal revenue of wage income taxes, and the wage curve: A brief note," Research Memorandum 016, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:umamer:2002016
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    1. Erkki Koskela & Ronnie Schöb, 2002. "Alleviating Unemployment: The Case for Green Tax Reforms," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 20, pages 355-378, Edward Elgar Publishing.
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