Carbon Taxation, Firm Performance and Labor Demand
This paper provide new empirical evidence on the impacts of carbon taxation on firm performance and labor demand, using a quasi-experimental framework and rich administrative datasets. It find that higher stringent carbon taxation, induced by the removal of carbon tax refunds, significantly reduced emissions among Swedish manufacturing firms. It also find negative effects on revenue and employment, which are especially concentrated among emission-intensive firms.
The report is written by Jimmy Karlsson, The Research Institute of Industrial Economics (IFN), on befalf of Growth analysis.
Using matched employer-employee data from the Swedish registers from 2004 to 2018, I estimate the effects of a reform that increased the stringency of the tax for a subset of firms in the manufacturing sector.
In a Difference-in-Differences framework, I find that the reform significantly reduced emissions, primarily through a switch to biofuels. However, it also reduced revenue and employment among emission-intensive firms. The negative employment effects are more pronounced for low-educated workers, suggesting a skill-biased effect of carbon taxation, although high-educated workers are also negatively affected at the most exposed firms.
On average, the result corresponds to semi-elasticities of -0.58% per euro tax increase for emissions, and -0.20% for low-educated employment. The paper concludes with a discussion on the implications for the green transition and labor market inequality.
