Working Paper: NBER ID: w27960
Authors: Garth Heutel; Xin Zhang
Abstract: We study the incidence of pollution taxes and their impact on unemployment in an analytical general equilibrium efficiency wage model. We find closed-form solutions for the effect of a pollution tax on unemployment, factor prices, and output prices, and we identify and isolate different channels through which these general equilibrium effects arise. An effect arising from the efficiency wage specification depends on the form of the workers' effort function. Numerical simulations further illustrate our results and show that this efficiency wage effect can fully offset the sources-side incidence results found in models that omit it.
Keywords: pollution taxes; unemployment; efficiency wages; environmental policy
JEL Codes: H22; J64; Q52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pollution taxes (H23) | unemployment (J64) |
| clean sector substitution effect (C24) | unemployment (J64) |
| efficiency wage effect (J33) | unemployment (J64) |
| efficiency wage effect (J33) | incidence of pollution taxes (H23) |
| pollution taxes (H23) | factor prices (F16) |
| elasticity of workers' effort (J29) | efficiency wage effect (J33) |