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Consequences of Environmental Tax Reform for Unemployment and Welfare

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Abstract

We investigate the welfare effects of environmental tax reform, i.e. raising environmental taxes and using the proceeds to reduce distortionary taxes on labour. The framework of analysis is a small open economy with involuntary unemployment due to a rigid consumer wage. Environmental tax reform boosts not only environmental quality but also employment if substitution between labour and resources is easy, the production share of the fixed factor is large, and the initial tax rates on resources and profits are small. If the initial tax system is sub-optimal with a negligible tax on resources, profits rise as well.

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Authors and Affiliations

  1. CentER, Tilburg University, 5000 LE, Tilburg, The Netherlands

    A. Lans Bovenberg

  2. FEE, University of Amsterdam, 1018 WB, Amsterdam, The Netherlands

    Frederick Van der Ploeg

Authors
  1. A. Lans Bovenberg
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  2. Frederick Van der Ploeg
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Bovenberg, A.L., Van der Ploeg, F. Consequences of Environmental Tax Reform for Unemployment and Welfare. Environmental and Resource Economics 12, 137–150 (1998). https://doi.org/10.1023/A:1016040327622

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  • DOI: https://doi.org/10.1023/A:1016040327622

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