Economic and employment impacts of climate change mitigation policies in OECD: A general-equilibrium perspective

Using a computable general equilibrium model, this paper aims at quantifying gross domestic product and labour impacts of an illustrative greenhouse gas emissions reduction policy. Labour markets are first assumed to be totally flexible, climate policies impact negatively GDP and show relatively limited labour sectoral reallocations compared to last 20 years changes. The model is then modified to incorporate labour market imperfections in OECD countries. In this case, the production costs of mitigation policy are affected in two ways: first by introducing extra costs due to the increased unemployment that such policy may entail; second by creating the possibility of a double dividend effect when carbon taxes are recycled so as to reduce distorting taxes on labour income.