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Tax Reform, Structural Unemployment and the Environment[Note 1. We are grateful for the helpful comments of two ...]
Author(s) -
Bovenberg A. Lans,
Van Der Ploeg Frederick
Publication year - 1998
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00124
Subject(s) - economics , labour economics , tax reform , earnings , unemployment , productivity , energy tax , context (archaeology) , structural unemployment , value added tax , wage , state income tax , macroeconomics , public economics , finance , paleontology , biology
The effects of environmental tax reform, i.e., using the proceeds of a higher energy tax rate to lower the labour tax rate, on wage formation, employment and environmental quality are analysed in the context of a small open economy with structural unemployment caused by hiring costs. We find that such a reform may boost employment if it shifts the tax burden away from workers towards those without employment in the formal sector. Environmental tax reform succeeds in shifting the tax burden away from workers in the formal sector if higher energy taxes reduce earnings in the informal sector by reducing labour productivity.