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Optimal Taxation and Environmental Policy in a Decentralized Economic Federation with Environmental and Labor Market Externalities

Author

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  • Sjögren, Tomas

    (Department of Economics, Umeå University)

Abstract

This paper concerns optimal taxation and environmental policy in the presence of transboundary environmental damage and labour market distortions, where the latter gives rise to wage bargaining externalities between countries. I consider a decentralized economic federation where the federal government chooses emission targets to be implemented by the national governments. The results show that the labour market externality will influence the target levels for emissions chosen by the central government. I then proceed to characterize the optimal tax policy at the national level. The decentralized federation structure produces incentives for the national governments to use the tax policy to influence the policies chosen by the federal level. It is shown how these objectives interact with the additional objective to minimize the distortion on the national labour market.

Suggested Citation

  • Sjögren, Tomas, 2009. "Optimal Taxation and Environmental Policy in a Decentralized Economic Federation with Environmental and Labor Market Externalities," Umeå Economic Studies 785, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:0785
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    Cited by:

    1. Alex Bowen, 2014. "Green growth," Chapters, in: Giles Atkinson & Simon Dietz & Eric Neumayer & Matthew Agarwala (ed.), Handbook of Sustainable Development, chapter 15, pages 237-251, Edward Elgar Publishing.

    More about this item

    Keywords

    Transboundary Externalities; Labour Market Distortions; Economic Federation; Optimal Taxation;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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