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dc.titleClimate Policies, Labor Markets, and Macroeconomic Outcomes in Emerging Economies
dc.contributor.authorFinkelstein-Shapiro, Alan
dc.contributor.authorNuguer, Victoria
dc.contributor.orgunitDepartment of Research and Chief Economist
dc.coverageLatin America and the Caribbean
dc.date.available2023-04-10T00:04:00
dc.date.issue2023-04-10T00:04:00
dc.description.abstractWe study the labor market and macroeconomic effects of introducing a carbon tax in the energy sector in emerging economies (EMEs) by building a framework with equilibrium unemployment and firm entry that incorporates key elements of the distinct employment and firm structure of EMEs. Our model endogenizes the adoption of green energy-production technologies--a core element of policy discussions regarding the transition to a low-carbon economy. Calibrating the model to EME data, we show that a carbon tax fosters greater green technology adoption and increases the share of green energy produced. However, the tax leads to higher energy prices, which reduce salaried firm creation and formal employment and increase self-employment, labor participation, and unemployment. As a result, the tax generates output and welfare losses. Green technology adoption plays a key role in limiting the quantitative magnitude of these losses, while the response of self-employment is crucial to explaining the adverse labor market and macroeconomic effects of the policy. Given this finding, we show that a carbon tax coupled with a plausible reduction in the cost of becoming a formal firm can offset the adverse effects of the tax and generate a transition to a lower-carbon economy with minimal economic costs. Finally, we show that lowering green-technology adoption costs or the cost of green-energy production inputs--two alternative climate policies--reduces emissions while limiting the output and welfare costs compared to a carbon tax.
dc.format.extent95
dc.identifier.doihttp://dx.doi.org/10.18235/0004844
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Climate-Policies-Labor-Markets-and-Macroeconomic-Outcomes-in-Emerging-Economies.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectSmall Business
dc.subjectCarbon Tax
dc.subjectEnergy
dc.subjectScience and Technology
dc.subjectLabor
dc.subjectEconomy
dc.subjectFinancial Friction
dc.subjectUnemployment Rate
dc.subjectLabor Market
dc.subjectTaxation
dc.subjectLabor Force Participation
dc.subjectHealthy Economy
dc.subjectInformal Economy
dc.subjectSelf Employment
dc.subjectEmerging Market
dc.subject.jelcodeE20 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General
dc.subject.jelcodeE24 - Employment • Unemployment • Wages • Intergenerational Income Distribution • Aggregate Human Capital • Aggregate Labor Productivity
dc.subject.jelcodeE61 - Policy Objectives • Policy Designs and Consistency • Policy Coordination
dc.subject.jelcodeH23 - Externalities • Redistributive Effects • Environmental Taxes and Subsidies
dc.subject.jelcodeJ46 - Informal Labor Markets
dc.subject.jelcodeJ64 - Unemployment: Models, Duration, Incidence, and Job Search
dc.subject.jelcodeO44 - Environment and Growth
dc.subject.jelcodeQ52 - Pollution Control Adoption and Costs • Distributional Effects • Employment Effects
dc.subject.jelcodeQ55 - Technological Innovation
dc.subject.keywordsEnvironmental and fiscal policy;carbon taxes;Endogenous firmcreation;Green technology adoption;Search frictions;Unemployment;Labor forcepar ticipation;Informality and self-employment;Emerging economies
dc.typeWorking Papers
idb.identifier.pubnumberIDB-WP-01429
idb.operationRG-E1817
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