Ecological Tax Reform and Involuntary Unemployment: Simulation Results for Switzerland

Abstract

Using an applied general equilibrium of the Swiss economy the economic consequences of an environmental tax reform are analysed. Such a reform is followed by a substantial reduction of CO2 emissions and the use of non-renewable energy (first dividend), and a reduction of involuntary unemployment. The existence of this second dividend depends, however, on the strategy followed by trade unions. These results are compared with the results of models with voluntary employment, with an energy tax rather than a CO2 tax, and a model where the three most energy intensive sectors are exempted from paying the CO2 tax.