Does wage bargaining justify environmental policy coordination?
2008 (English)Report (Other academic)
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.
Place, publisher, year, edition, pages
Umeå economic studies, ISSN 0348-1018 ; 754
environmental taxes, externalities, policy coordination, trade-unions
Research subject Economics
IdentifiersURN: urn:nbn:se:umu:diva-3622OAI: oai:DiVA.org:umu-3622DiVA: diva2:142411