Effects of Green Taxes on Total Factor Productivity through Labor Market Demands: Dynamic Systems Approach

Abstract

The goal of this article was to investigate the effects of carbon taxes on productivity in Iran using dynamic system frameworks. To this end, time-series data in Iran from 1992 to 2020 were used to investigate the subject using equations. In the dynamic model, two major variables, GDP and carbon dioxide emissions, were selected as so-called affecting channels. Scenario results showed that a 3% increase in GDP through the carbon tax channel would boost economic productivity. Also, an 11% increase in carbon dioxide emissions affected green taxes, and finally economic welfare and productivity. The scenario of increasing green taxes on productivity through the economic welfare channel indicated that increasing green taxes affected economic welfare and productivity. It was then concluded that changes in GDP and carbon dioxide emissions could fundamentally affect the extent to which green taxes could affect productivity in Iran. Prediction scenarios demonstrated that public policy-making should concentrate on two GDP and carbon dioxide emission channels to make green taxes affect productivity positively. Since GDP increases greenhouse gas emissions, public tax policies, especially green tax policies, should be in a way that increasing GDP, and consequently, increasing carbon dioxide emissions would boost economic welfare and productivity.