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Household incidence of pollution control policies: A robust welfare analysis using general equilibrium effects

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  • Araar, Abdelkrim
  • Dissou, Yazid
  • Duclos, Jean-Yves

Abstract

This study assesses the incidence of pollution control policies on households. In contrast to previous studies, we employ an integrated framework combining a multisector general equilibrium model with a stochastic dominance analysis using household-level data. We consider three policy instruments in a domestic emission trading system: (i) an output-based allocation (OBA) of permits; (ii) the use of the proceeds of permit sales to reduce payroll taxes (RPT); (iii) and the use of these proceeds to reduce consumption taxes instead (UCS). The general equilibrium results suggest that the return to capital is more negatively affected than the wage rate in all simulations, since polluting industries are capital intensive. Abstracting from pollution externalities, the dominance analysis suggests that all three policies have a normatively robust negative (positive) impact on welfare (poverty). Formal dominance tests indicate that RPT first-order welfare dominates OBA over all values of household incomes. UCS also first-order poverty dominates RPT for any choice of poverty line below $CAN 18,600, and poverty dominates for any poverty line (and thus welfare dominates) at the second order. Finally, while the three pollution control policies do not have a numerically large impact on inequality (in comparison to the base run), statistical tests indicate that inequality increases significantly more with OBA and RPT than with UCS.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 61 (2011)
Issue (Month): 2 (March)
Pages: 227-243

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Handle: RePEc:eee:jeeman:v:61:y:2011:i:2:p:227-243

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Web page: http://www.elsevier.com/locate/inca/622870

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Keywords: Pollution control policies Household incidence Stochastic dominance General equilibrium effects;

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References

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Citations

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Cited by:
  1. Dorothée Boccanfuso & Luc Savard & Antonio Estache, 2013. "The Distributional Impact of Developed Countries’ Climate Change Policies on Senegal: A Macro-Micro CGE Application," Sustainability, MDPI, Open Access Journal, vol. 5(6), pages 2727-2750, June.
  2. Dorothee Boccanfuso & Antonio Estache & Luc Savard, 2011. "The Intra-country Distributional Impact of Policies to Fight Climate Change: A Survey," Journal of Development Studies, Taylor & Francis Journals, vol. 47(1), pages 97-117.
  3. Peter Grösche & Carsten Schröder, 2014. "On the redistributive effects of Germany’s feed-in tariff," Empirical Economics, Springer, vol. 46(4), pages 1339-1383, June.
  4. Dorothée Boccanfuso & Antonio Estache & Luc Savard, 2008. "Intra-Country Distributional Impact of Policies to Fight Climate Change: A Survey," Working Papers ECARES 2008_038, ULB -- Universite Libre de Bruxelles.
  5. Cludius, Johanna & Beznoska, Martin & Steiner, Viktor, 2012. "Distributional effects of the European Emissions Trading System and the role of revenue recycling: Empirical evidence from combined industry- and household-level data," Discussion Papers 2012/6, Free University Berlin, School of Business & Economics.
  6. Dorothée Boccanfuso & Antonio Estache & Luc Savard, 2008. "Distributional impact of global warming environmental policies: A survey," Cahiers de recherche 08-14, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  7. Dissou, Yazid & Siddiqui, Muhammad Shahid, 2014. "Can carbon taxes be progressive?," Energy Economics, Elsevier, vol. 42(C), pages 88-100.
  8. Dorothée Boccanfuso & Antonio Estache & Luc Savard, 2009. "Distributional impact of developed countries CC policies on Senegal : A macro-micro CGE application," Cahiers de recherche 09-11, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  9. Martin Beznoska & Johanna Cludius & Viktor Steiner, 2012. "The Incidence of the European Union Emissions Trading System and the Role of Revenue Recycling: Empirical Evidence from Combined Industry- and Household-Level Data," Discussion Papers of DIW Berlin 1227, DIW Berlin, German Institute for Economic Research.

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