Environmental Goods and Measures for Their Promotion: An Analysis Using a Fair Wage Model

22 Pages Posted: 7 Jan 2017 Last revised: 31 May 2020

See all articles by Yasuyuki Sugiyama

Yasuyuki Sugiyama

Fukui Prefectural University

Muneyuki Saito

Nara Prefectural University

Date Written: December 2016

Abstract

In this paper, we model a two‐sector small open economy with emissions and unemployment associated with the fair wage effort hypothesis, and investigate the environmental and employment impact of an emission tax, a subsidy for purchasing environmental goods in the downstream polluting industry, and a subsidy to the upstream eco‐industry. We then show that if the eco‐industry is skilled labor intensive relative to the polluting final goods industry, while a subsidy for purchasing environmental goods decreases the unemployment rate of unskilled labor, it may increase total emissions. In contrast, the emission tax and the subsidy to eco‐industry firms worsen the unemployment rate, though both policies decrease total emissions. Hence, if the emission tax is set equal to the marginal environmental damage, and either a downstream or upstream subsidy is used to mitigate unskilled unemployment, the optimal subsidy to purchase the goods is positive whereas the optimal subsidy to the eco‐industry is negative, i.e., a tax on the eco‐industry.

Suggested Citation

Sugiyama, Yasuyuki and Saito, Muneyuki, Environmental Goods and Measures for Their Promotion: An Analysis Using a Fair Wage Model (December 2016). Pacific Economic Review, Vol. 21, Issue 5, pp. 581-602, 2016, Available at SSRN: https://ssrn.com/abstract=2894651 or http://dx.doi.org/10.1111/1468-0106.12157

Yasuyuki Sugiyama (Contact Author)

Fukui Prefectural University

Muneyuki Saito

Nara Prefectural University ( email )

10 Funabashi-cho
Nara, Nara 630-8258
Japan

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