Environmental taxes constitute a crucial instrument aimed at reducing resource use through lower production losses, resource-leaner products, and more resource-efficient production processes. In this paper we focus on material use and apply a multi-sector dynamic stochastic general equilibrium (DSGE) model to study two types of taxation: tax on material inputs used by industry, energy, construction, and transport sectors, and tax on output of these sectors. We allow for endogenous adoption of resource-saving technologies. We calibrate the model for the EU27 area using an IO matrix. We consider taxation introduced from 2021 and simulate its impact until 2050. We compare the taxes along their ability to induce reduction in material use and raise revenue. We also consider the effect of spending this revenue on reduction of labour taxation. We find that input and output taxation create contrasting incentives and have opposite effects on resource efficiency. The material input tax induces investment in efficiency-improving technology which, in the long term, results in GDP and employment by 15%–20% higher than in the case of a comparable output tax. We also find that using revenues to reduce taxes on labour has stronger beneficial effects for the input tax.

Purpose: The purpose of this paper is to identify factors behind cyclical fluctuations and differences in adjustments to shocks in Greece, Italy, Portugal and Spain (GIPS) and a reference country – Germany. The authors try to answer the question whether the GIPS countries could have fared differently in the Great Recession if they reacted to shocks affecting them like a resilient German economy would have. Design/methodology/approach: The authors use a DSGE model of real open economy with search and matching on the labour market and endogenous job destruction, estimated separately for each country. The authors calculate impulse response functions, historical decompositions and perform counterfactual simulations of the response of the German model to the sequence of shocks identified for each of GIPS. Findings: The authors find that all GIPS countries were more vulnerable to productivity and foreign demand shocks than Germany. They would have experienced lower macroeconomic volatility if they reacted to their shocks like Germany. Employment (unemployment) rates in GIPS would have been less volatile and higher (lower) during the Great Recession, especially in Spain and Greece. Real wage volatility would have been higher, especially in Spain and Portugal. Originality/value: The trade-off between unemployment and wage adjustments vis-à-vis Germany was the largest in Spain, which also would have experienced lower variability of job separations and hirings. The evolution of the labour market in Greece and Portugal was driven rather by its higher responsiveness to GDP fluctuations than in Germany, whereas Italy emerges as the least responsive labour market within GIPS.