March 2019

This paper investigates the employment impacts of British Columbia’s revenue-neutral carbon tax. We develop a revised approach to implementing the synthetic control method to firm-level employment data, allowing us to estimate heterogeneous impacts across industries. We find that the employment effects vary across sectors, specifically small service firms see their employment increase, while employment of larger energy-intensive and trade-intensive manufacturing firms decreases. These results provide new evidence for the “job-shifting hypothesis” of the revenue neutral tax. Tax cuts increased the purchasing power of low-income households benefiting locally operating businesses (such as restaurants, massage or yoga studios) at the expense of the more internationally-exposed larger manufacturing firms. In contrast to previous papers, we find that the aggregate employment was unaffected by the BC policy.

Authors:
Deven Azevedo, Department of Economics, London School  of Economics and Political Science
Hendrik Wolff, Department of Economics, Simon Fraser University
Akio Yamazaki, Department of Economics, University of Calgary

 


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