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Crosscutting paper, labour market and tax recycling (Terry Barker

This paper considers how the treatment of revenues from environmental taxes and charges affects the results from models designed to address environmental problems, such as mitigation of climate change. First, we review the literature on revenue recycling, and then we report the quantitative results from meta-analyses of the costs of mitigating climate change, which show that the use of revenues from carbon taxes is an important influence on the costs. We explain the treatment in the TranSust models and finally discuss the mitigation scenarios and provide some explanation for differences in the results.

There are two clear groups of models associated to the way they treat unemployment and the factors that determine employment demand. In the first group, employment and other elements of the labour market are treated more explicitly; in particular the labour market would respond to changes in social security contributions by having an impact on the cost of employment. In the second group of models, employment is given exogenously and often linked to business-as-usual assumptions about population or labour force growth. In some cases, population, employment and labour force are the same

In the first group of models, the labour input necessary to satisfy the demand for a given product (or group of products) in a given geographic unit and/or industry category responds to variables such as relative labour costs, technological growth and demand for the products. In addition, wages respond to prices and unemployment and normally prices of products will incorporate wages as one of the production costs.

The main research conclusions are:
- The meta-analysis of post SRES scenarios indicates that the use of revenue recycling is an important factor in reducing the costs of mitigation in carbon tax scenarios.

- Many models in the TranSust project do not including the labour market explicitly, so cannot address the issue of revenue recycling through reductions in employment taxes and charges, such as employers social security contributions.

- Those models that do treat the labour market explicitly are also associated with higher product substitution and the modelling of dynamic behaviour of economies.

- From the scenario results, the form of recycling (social security or lump-sum) has an impact on the cost of a carbon tax as measured by loss of GDP.

- The social security recycling produces the extra benefit of stimulating the labour market thereby reducing overall distortions, providing examples of a small double dividend.

Informations connexes

Reported by

Cambridge Centre for Climate Change Mitigation Research (4CMR),
19 Silver Street
CB3 9EP Cambridge
United Kingdom
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