Green Tax Reform and Employment: The Interaction of Profit and Factor Taxes

The employment effects of an ecological tax reform depend decisively on the presence of a profit tax and on the extent to which profits are taxed. This is shown in a model where firms have monopoly power on product markets and bargain over wages with unions on the labour market. In this setting, the value of the employment-maximising energy tax rate depends on the level of the profit tax. The question of whether there is unemployment or not turns out to be less important.

Boeters, Stefan (2001), Green Tax Reform and Employment: The Interaction of Profit and Factor Taxes, ZEW Discussion Paper No. 01-45, Mannheim.