90
M. P. Ramos and O. O. Chisari
The Third Dividend: Less Unemployment and Less Inequality
The previous double dividend of an ETR might become a modest objective for developing economies. Therefore, other dimensions of socio-economic dividends have to
be taken into account. For instance, carbon taxation results in the redistribution of
income and impacts on welfare too. Those changes are important and could trigger
political opposition that could block its use. In that sense, the determination of wages
(constant in real vs. nominal terms) and capital mobility are key elements in assessing
the quantitative impact of carbon taxes (Chisari and Miller 2015). In this sense, we
have to calculate the best ETR under unemployment conditions. And for this particular issue, it should be recalled that second best Ramsey taxes must be corrected
reducing those applied on goods which are labour intensive (Marchand, Pestieau
and Wibaut, 1989; Koskela and Schöb 2001; Böhringer et al. 2005). In this regard,
Carraro et al. (1996) show that the employment dividend could be generally reached
when the carbon tax replaces labour (social security) taxation. Moreover, Chisari
and Miller (2015) find that, under full employment, the cost of lower emissions is
significantly reduced with respect to the unemployment case. These results raise the
point that economic dividends are sensitive to the conditions specified for the labour
market, in particular, and the factors markets, in general.
Bovenberg and Goulder (2002) additionally find that this third dividend is particularly achieved when the sector levied by the carbon tax is not labour intensive;
otherwise, employees are the ones who assume directly (or indirectly through good
prices and unemployment) the cost of the carbon tax (Layard et al. 1991; Koskela and
Schöb 1999). Moreover, under unemployment in a small open economy, the employment dividend could appear if labour is highly substitutable with other resources, if
the participation of labour in value added is large, and if the relative taxation between
labour and other factors is initially high (Bovenberg and Van der Ploeg 1994).
Ciaschini et al. (2012) find that, even when the employment dividend could be
reached at the national level, regional disparities could intensify depending on tax
recycling. They compared the impact of two tax recycling scenarios (national income
tax and regional taxes) of an ETR between the north and the south of Italy, and they
find that a lower unemployment rate is achieved only in the north but, unfortunately,
not in the south, where this scourge is more severe. Kolsuz and Yeldan (2017) also
observe that promoting green employment through carbon tax revenues could lead
to a triple-win situation for GHG emission abatement, employment and economic
growth in Turkey.
The introduction of structural characteristics in the dynamic CGE model makes
it possible to infer dividend relations applicable to other developing countries. For
example, the presence of dual economies (formal and informal) and urban–rural
migration could modify the expected results. Markandya et al. (2013) empirically
demonstrate for Spain that, with a shadow economy (informal labour), a carbon
tax allows for the reduction of inefficiencies indirectly taxing this informal labour
through greater prices. Under this context, when a carbon tax compensates lower
(formal) labour taxes, informal labour becomes formal, GDP increases and the
M. P. Ramos and O. O. Chisari
The Third Dividend: Less Unemployment and Less Inequality
The previous double dividend of an ETR might become a modest objective for developing economies. Therefore, other dimensions of socio-economic dividends have to
be taken into account. For instance, carbon taxation results in the redistribution of
income and impacts on welfare too. Those changes are important and could trigger
political opposition that could block its use. In that sense, the determination of wages
(constant in real vs. nominal terms) and capital mobility are key elements in assessing
the quantitative impact of carbon taxes (Chisari and Miller 2015). In this sense, we
have to calculate the best ETR under unemployment conditions. And for this particular issue, it should be recalled that second best Ramsey taxes must be corrected
reducing those applied on goods which are labour intensive (Marchand, Pestieau
and Wibaut, 1989; Koskela and Schöb 2001; Böhringer et al. 2005). In this regard,
Carraro et al. (1996) show that the employment dividend could be generally reached
when the carbon tax replaces labour (social security) taxation. Moreover, Chisari
and Miller (2015) find that, under full employment, the cost of lower emissions is
significantly reduced with respect to the unemployment case. These results raise the
point that economic dividends are sensitive to the conditions specified for the labour
market, in particular, and the factors markets, in general.
Bovenberg and Goulder (2002) additionally find that this third dividend is particularly achieved when the sector levied by the carbon tax is not labour intensive;
otherwise, employees are the ones who assume directly (or indirectly through good
prices and unemployment) the cost of the carbon tax (Layard et al. 1991; Koskela and
Schöb 1999). Moreover, under unemployment in a small open economy, the employment dividend could appear if labour is highly substitutable with other resources, if
the participation of labour in value added is large, and if the relative taxation between
labour and other factors is initially high (Bovenberg and Van der Ploeg 1994).
Ciaschini et al. (2012) find that, even when the employment dividend could be
reached at the national level, regional disparities could intensify depending on tax
recycling. They compared the impact of two tax recycling scenarios (national income
tax and regional taxes) of an ETR between the north and the south of Italy, and they
find that a lower unemployment rate is achieved only in the north but, unfortunately,
not in the south, where this scourge is more severe. Kolsuz and Yeldan (2017) also
observe that promoting green employment through carbon tax revenues could lead
to a triple-win situation for GHG emission abatement, employment and economic
growth in Turkey.
The introduction of structural characteristics in the dynamic CGE model makes
it possible to infer dividend relations applicable to other developing countries. For
example, the presence of dual economies (formal and informal) and urban–rural
migration could modify the expected results. Markandya et al. (2013) empirically
demonstrate for Spain that, with a shadow economy (informal labour), a carbon
tax allows for the reduction of inefficiencies indirectly taxing this informal labour
through greater prices. Under this context, when a carbon tax compensates lower
(formal) labour taxes, informal labour becomes formal, GDP increases and the