Environmental Policy, Efficient Taxation and Unemployment

Author: Aronsson, Thomas

Source: International Tax and Public Finance, Volume 12, Number 2, March 2005 , pp. 131-144(14)

Publisher: Springer

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Abstract:

In this paper, I consider environmental policy as part of a mixed tax problem with a general income tax and linear commodity taxes. I assume that the wage rate is determined by bargaining between unions and firms. The results show that the change in the number of employed persons, following a change in the use of a tax instrument, affects the optimal tax structure via two channels; (i) it makes the tax revenues available for public expenditures more or less costly to collect, and (ii) it affects the aggregate demand for the good that causes the environmental damage. This means that the use of taxation to counteract the labor market imperfection is not easily separated from the environmental aspects of tax policy.

Keywords: optimal taxation; external effects; unemployment

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s10797-005-0498-4

Affiliations: 1: Department of Economics, Ume University, SE-901 87, Umeå, Sweden, Email: Aronsson@econ.umu.se

Publication date: 2005-03-01