The double-dividend argument (as used in political debates) addresses worries that a green tax may lead to higher unemployment when wages are inflexible. As protection against this possibility, it is proposed to use the proceeds of the green tax to subsidize employment. In the best case, this...

We develop a simple general equilibrium model of production where, despite the existence of involuntary unemployment, non-equalized job rents are the only distortion. Hence, a standard GDP function exists. Unemployment results from either efficiency wage setting or wage bargaining