The European Union has recently proposed sectoral tax differentiatio as a policy to fight unemployment. The member countries are allowed to reduce the VAT rates on goods and services that are particularly labor intensive and price elastic. The paper provides a theoretical analysis of the effects...

The paper examines the effects of an environmental tax reform in a small open economy with decentralized wage bargaining, monopolistically competitive firms and equilibrium unemployment. There is a tradable and a non-tradable sector and all firms use labour as well as an imported polluting...