Climate policies, labor markets, and macroeconomic outcomes in emerging economies
Journal of Development Economics · 2026 · Alan Finkelstein Shapiro、Victoria Nuguer
Abstract
We study the labor market and macroeconomic effects of carbon taxation in the energy sector in emerging economies. We build a macro-search model with pollution externalities, endogenous green-energy adoption, salaried-firm entry, and endogenous self-employment. The carbon tax increases green technology adoption in the energy sector and the share of green energy. Under a baseline revenue recycling scheme that transfers the carbon tax revenue to households, the tax raises energy prices, leading to a reduction in salaried firm and job creation, and an increase in self-employment and labor force participation that ultimately generate welfare and GDP losses. Additional model experiments show that the presence of self-employment as a distinct employment category significantly amplifies these losses. However, endogenous green technology adoption can drastically limit the magnitude of these losses. Using the carbon tax revenue to support green energy investment can deliver a decline in energy prices and net welfare and output gains while reducing self-employment.