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Does Wage Bargaining Justify Environmental Policy Coordination?

Author

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  • Aronsson, Thomas

    (Department of Economics, Umeå University)

  • Persson, Lars

    (Department of Economics, Umeå University)

  • Sjögren, Tomas

    (Department of Economics, Umeå University)

Abstract

This paper analyzes the welfare consequences of coordinated tax reforms in an economy where a transboundary environmental externality and an international wage bargaining externality are operative at the same time. We assume that the wage in each country is decided upon in a bargain between trade-unions and firms, and the wage bargaining externality arises because the fall-back profit facing firms depends on the profit they can earn if moving production abroad. Using the noncooperative Nash equilibrium as a reference case, our results imply that the international wage bargaining externality may either reinforce or weaken the welfare gain of a coordinated increase in environmental taxation, depending on (among other things) how the reform affects the wage. For a special case, we also derive an exact condition under which a coordinated increase in the environmental tax leads to higher welfare.

Suggested Citation

  • Aronsson, Thomas & Persson, Lars & Sjögren, Tomas, 2008. "Does Wage Bargaining Justify Environmental Policy Coordination?," Umeå Economic Studies 754, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:0754
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    Keywords

    Environmental taxes; externalities; policy coordination; trade-unions;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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