Environmental Tax Reform and Income Distribution with Imperfect Heterogeneous Labour Markets
Journal article: This paper investigates the distributional and efficiency consequences of an environmental tax reform that distributes the revenue from a green tax according to varying labour tax rates. We build a general equilibrium model with heterogeneous workers, imperfect labour markets (search and match), and pollution consumption externalities. Preferences are non-homothetic (Stone-Geary utility) to take into account the potential regressivity of green taxes (the polluting good is assumed to be a necessary good). If the reform appears regressive, the gains from the double dividend can achieve Pareto improvement, using a redistributive non-linear income tax if the redistribution is not too great initially. Increasing progressivity influences the unemployment rate and can moderate the trade-off between equity and efficiency. We finally provide numerical illustrations for France and conduct sensitivity analysis.
Author(s)
Diane Aubert, Mireille Chiroleu-Assouline
Journal
- European Economic Review
Date of publication
- 2019
Keywords JEL
Keywords
- Tax progressivity
- Welfare analysis
- Environmental tax reform
- Heterogeneity
- Unemployment
Pages
- 60-82
URL of the HAL notice
Version
- 1
Volume
- 116