Recycling of Eco-Taxes, Labor Market Effects and the True Cost of Labor: A CGE Analysis

28 Pages Posted: 20 Aug 2002

See all articles by Andreas Löschel

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics

Klaus Conrad

University of Mannheim - Department of Economics

Date Written: May 15, 2002

Abstract

Computable general equilibrium (CGE) modeling has provided a number of important insights about the interplay between environmental tax policy and the pre-existing tax system. In this paper, we emphasize that a labor market policy of recycling tax revenues from an environmental tax to lower employers' non-wage labor cost depends on how the costs of labor are modeled. We propose an approach which combines neoclassical substitutability and fixed factor proportions. Our concept implies a user cost of labor which consists of the market price of labor plus the costs of inputs associated with the employment of a worker. We present simulation results based on a CO2 tax and the recycling of its revenues to reduce the nonwage labor cost. One simulation is based on the market price of labor and the other on the user cost of labor. We found a double dividend under the first approach but not under the second one.

Keywords: Market-based environmental policy, carbon taxes, double dividend, computable general equilibrium modeling

JEL Classification: D58, J30, Q25

Suggested Citation

Löschel, Andreas and Conrad, Klaus, Recycling of Eco-Taxes, Labor Market Effects and the True Cost of Labor: A CGE Analysis (May 15, 2002). ZEW Discussion Paper No. 02-31, Available at SSRN: https://ssrn.com/abstract=320982 or http://dx.doi.org/10.2139/ssrn.320982

Andreas Löschel (Contact Author)

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics ( email )

Universitätsstr. 14-16
48143 Munster
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/eroe

Klaus Conrad

University of Mannheim - Department of Economics ( email )

Seminargebaeude A5
68131 Mannheim
Germany
+49 621 1811896 (Phone)
+49 621 1811893 (Fax)

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