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The Impact of Environmental Taxation on Wage Inequality in the Presence of Subsidizing Renewable Energy

Author

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  • Pi Jiancai

    (Department of Economics, Nanjing University, Nanjing, P.R. China)

  • Fan Yanwei

    (Department of Economics, Nanjing University, Nanjing, P.R. China)

Abstract

This paper explores how environmental taxation affects wage inequality in the presence of subsidizing renewable energy. It is necessary to take both traditional dirty energy and renewable energy into account. Take the case where the renewable energy sector is more skill-intensive than the traditional energy sector as an example. If the final product sector is more skill-intensive than the whole energy sector, an increment of the output tax in the traditional energy sector will widen wage inequality unambiguously. However, if the final product sector is less skill-intensive than the whole energy sector, an increment of the output tax in the traditional energy sector may narrow down wage inequality when the substitution elasticity between energy and labor in the final product sector is sufficiently large. The interaction between environmental taxation and subsidization on renewable energy plays a key role in the mechanism. We also analyze the relationship between environmental taxation and welfare.

Suggested Citation

  • Pi Jiancai & Fan Yanwei, 2023. "The Impact of Environmental Taxation on Wage Inequality in the Presence of Subsidizing Renewable Energy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 23(2), pages 467-496, April.
    • Handle: RePEc:bpj:bejeap:v:23:y:2023:i:2:p:467-496:n:1
    DOI: 10.1515/bejeap-2022-0236
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    More about this item

    Keywords

    environmental taxation; subsidization on renewable energy; wage inequality; welfare;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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