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Climate policies, labour markets and macroeconomic outcomes in emerging economies

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  • Alan Finkelstein Shapiro
  • Victoria Nuguer

Abstract

We study the labour market and macroeconomic effects of a carbon tax in the energy sector in emerging economies. We build a search and matching macro model with pollution externalities from energy production, endogenous green-technology adoption, and salaried-firm entry that incorporates two key elements of the employment and firm structure of these economies: salaried labor and firm informality and self-employment. Calibrating the model to emerging-economy data, we show that a carbon tax increases green-technology adoption and the share of green energy, but also leads to higher energy prices. As a result, the tax reduces salaried firm creation, the number of formal firms, and formal employment, and leads to an increase in self-employment, labor participation, and unemployment - a response that generates long run output and welfare losses. Green-technology adoption limits while self-employment exacerbates the quantitative magnitude of these losses. A joint policy that combines a carbon tax with a reduction in the cost of firm formality can offset the adverse effects of the tax and generate a transition to a lower-carbon economy with minimal economic costs.

Suggested Citation

  • Alan Finkelstein Shapiro & Victoria Nuguer, 2024. "Climate policies, labour markets and macroeconomic outcomes in emerging economies," BIS Working Papers 1204, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:1204
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    More about this item

    Keywords

    environmental and fiscal policy; carbon tax; endogenous firm creation; green technology adoption; search frictions; unemployment and labour force participation; informality and self-employment; emerging economies;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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