The employment double dividend of environmental tax reforms: exploring the role of agent behaviour and social interaction

Franziska Klein, Jeroen van den Bergh

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Abstract

It has been long debated whether environmental tax reform (ETR), i.e. a revenue-neutral shift of the tax burden from labour to carbon emissions, can have a double dividend, in terms of climate and economic goals. So far this question has been addressed in public finance and environmental economics using models with rational and representative agents. Here we examine the relevance of deviating from these standard behavioural assumptions. Our motivation is that research from other fields indicates that impacts of both environmental and income taxation on households are sensitive to behavioural biases, such as habits, imitation or status seeking. A related feature is that consumers and firms are heterogeneous with respect to many characteristics, some of which are crucial for the distributional effects of a tax reform. We combine insights from social psychology and behavioural, evolutionary and labour economics to identify behavioural cases in which the impacts of an ETR is likely to differ significantly from those in the traditional framework. Our findings show that households' time use patterns and the distinction between extensive and intensive labour supply are relevant and deserve more attention.
Original languageEnglish
Pages (from-to)1-25
Number of pages25
JournalJournal of Environmental Economics and Policy
Volume10
Issue number2
Early online date15 Sept 2020
DOIs
Publication statusPublished - 2020

Funding

FundersFunder number
Horizon 2020 Framework Programme741087
Horizon 2020 Framework Programme
European Research Council

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