Environmental fiscal reform and unemployment in Spain in the presence of an informal sector

The document argues that incorporating the informal sector into economic models strengthens the case for environmental fiscal reform in Spain. By using carbon tax revenues to reduce labour taxes, the government can encourage workers to move from the informal to the formal sector, thereby reducing unemployment and increasing overall welfare.

• Including the informal sector in the analysis strengthens the argument for environmental fiscal reform where carbon tax revenues are used to lower labour taxes.
• A simulation of a 15% reduction in CO2 emissions in Spain shows that recycling revenues via labour tax reductions leads to a 3.5% decrease in unemployment, whereas lump sum or capital tax recycling causes unemployment to rise slightly.
• Labour tax recycling for a 15% emission reduction increases welfare by approximately 2.9%, while lump sum and capital tax reforms reduce welfare by about 0.91%.
• The reduction in unemployment is driven by the fact that carbon taxes create a general price increase that acts as an implicit tax on both formal and informal sectors, broadening the factor tax base and encouraging a shift toward formal employment.
• Beyond CO2, labour tax recycling schemes are estimated to reduce damages from local pollutants (including SO2, NOx, and particulate matter) by 1-2 billion euros, representing between 0.3% and 1.1% of GDP.
• The shadow economy in Spain is estimated to have represented between 21.5% and 22.5% of GDP during the period 1999-2008, engaging approximately 4.3 million shadow jobs.

APA

Markandya, A., González-Eguino, M., & Escapa, M. (2012). Environmental fiscal reform and unemployment in Spain in the presence of an informal sector. Basque Centre for Climate Change. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/20121026030223908429614.pdf

Chicago

Markandya, Anil, Mikel González-Eguino, and Marta Escapa. Environmental fiscal reform and unemployment in Spain in the presence of an informal sector. Basque Centre for Climate Change, 2012. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/20121026030223908429614.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 in the presence of an informal sector |publisher=Basque Centre for Climate Change |date=August 2012 |url=https://www.bc3research.org/h6T8Uy8Nm4gFs0O/20121026030223908429614.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 in the presence of an informal sector}}, institution = {Basque Centre for Climate Change}, year = {2012}, month = aug, url = {https://www.bc3research.org/h6T8Uy8Nm4gFs0O/20121026030223908429614.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }