Pollution taxation and revenue recycling under monopoly unions

A model where a given number of firms determine their pollution-reducing pr oduction technologies upon establishment and workers form monopoly unions i s used to study the possibility of "double dividends", i.e., simultaneous r eductions in pollution and increases in employment, when the pollution tax is increased, and tax revenues recycled, in alternative ways. In all cases pollution is reduced. When output is subsidized, the effect of a pollution tax increase on employment is always neutral. When employment, and investme nts, are subsidized, employment increases when investments are, respectivel y, relatively insensitive and sensitive to pollution taxes. Of the three su bsidy instruments, the employment subsidy is always the most, and the inves tment subsidy the least efficient solution.