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

Abstract

This policy briefing reports the results obtained in two recent papers (Markandya et al 2012 and Gonzalez-Eguino et al 2012) where the role of Enviromental Fiscal Reform (EFR) is revisited for the case of Spain. We analyse the implications of including into the standard models an important additional dimension: the presence of an informal sector. We conclude that, if the distortions created by the shadow economy are considered, the case for an environmental tax reform where revenues are used to reduce labour taxes is strengthened.