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.