Environmental Fiscal Reform and Unemployment in Spain

The paper examines the potential for an employment double dividend in Spain, where carbon taxes are used to fund reductions in labour taxes. It reviews previous CGE models and introduces a new model that accounts for Spain's significant informal labour market. The authors find that recycling carbon tax revenues into labour tax reductions can significantly decrease unemployment and increase overall welfare, especially when accounting for the reduction of local pollutants.

• The 'double dividend' hypothesis suggests that environmental taxes can provide two benefits: improving the environment and generating revenue that allows governments to reduce other 'distortionary' taxes, thereby improving economic efficiency.
• Previous studies on Spain's double dividend show varying results: Manresa and Sancho estimated unemployment reductions between 0.6% and 2.3%, while Fæn et al. estimated a more modest fall between 0.1% and 0.3%.
• The authors' new model, which incorporates the informal labour market, estimates that an economy-wide carbon tax recycled via labour tax reductions could reduce unemployment by 3.5%.
• Recycling carbon tax revenues through labour tax reductions (L tax reform) increases welfare, whereas recycling via lump sum transfers (LST) or capital tax reductions (K tax reform) reduces it.
• The inclusion of the informal sector adds approximately 0.3% to the estimated reduction in unemployment compared to a model where formal and informal labour are used in fixed proportions.
• When the monetary value of reduced local pollutants (such as SO2 and NOx) and CO2 is included, the environmental tax reform results in a notable welfare increase of approximately 2-3%.

APA

Markandya, A., González-Eguino, M., & Escapa, M. (2012). Environmental Fiscal Reform and Unemployment in Spain. Basque Centre for Climate Change. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201204020934471365588556.pdf

Chicago

Markandya, Anil, Mikel González-Eguino, and Marta Escapa. Environmental Fiscal Reform and Unemployment in Spain. Basque Centre for Climate Change, 2012. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201204020934471365588556.pdf.

Wikipedia

{{cite report |last1=Markandya |first1=Anil |last2=González-Eguino |first2=Mikel |last3=Escapa |first3=Marta |title=Environmental Fiscal Reform and Unemployment in Spain |publisher=Basque Centre for Climate Change |date=April 2012 |url=https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201204020934471365588556.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{markandya2012environmental, author = {Markandya, Anil and González-Eguino, Mikel and Escapa, Marta}, title = {{Environmental Fiscal Reform and Unemployment in Spain}}, institution = {Basque Centre for Climate Change}, year = {2012}, month = apr, url = {https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201204020934471365588556.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }