This paper develops a model of a small open economy that produces an export good with domestic labour and imported energy and is stuck in an unemployment situation resulting from an excessive fixed net-of-tax wage rate. We study a revenue-neutral green tax reform that substitutes energy for wage...

This paper studies a revenue-neutral green tax reform that substitutes energy for wage taxes in an open economy with unemployment. As long as the labour tax rate exceeds the energy tax rate, such a reform will increase employment, reduce the domestic firms' unit cost of production and hence...

According to conventional wisdom internationally mobile capital should not be taxed or should be taxed at a lower rate than labour. An important underlying assumption behind this view is that there are no market imperfections, in particular that labour markets clear competitively. At least for...

This paper shows that outsourcing of parts of the workforce in unionized firms leads to wage moderation and as long as the share of the outsourced workforce is not too large, this wage-moderation effect on domestic employment outweighs the direct substitution effect so that domestic employment...

We study the impact of tax policy on wage negotiations, workers’ effort, employment, output and welfare when workers’ effort is only imperfectly observable. We show that the different wage-setting motives – rent sharing and effort incentives – reinforce the effects of partial tax policy...

According to the existing literature, capital taxes should not be imposed in the presence of optimal profit taxation in either unionized or competitive labour markets. We show that this conclusion does not hold for economies with dual labour markets where the competitive wage rate provides the...

When consumers choose between clean and dirty goods and the labour market clears, a green tax reform may not bring about a double dividend in the sense of increasing environmental quality and increasing employment. However, when firms choose between clean and dirty factors of production, and...

This paper shows that a small open economy should levy positive source-based taxes on capital income to fight involuntary unemployment and increase welfare. A revenue-neutral tax reform which increases the capital tax rate and reduces the labour tax rate will induce firms to substitute labour...