A Search Theoretic Approach on Environmental Taxation under Productive Differentials: A Note

Abstract

A considerable amount of literature argues that environmental taxation fails to create a double-dividend outcome and leads to a trade-off between pollution levels and unemployment. In this paper, a simple search and matching model of labour market is developed where workers are characterized by heterogeneous productive abilities in order as to examine the impact of a pollution tax on employment. An attempt is made in order to determine the efficient level of taxation in the short run, dropping the assumption of free-entry (zero profits) of firms.