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Comparing Applied General Equilibrium and Econometric Estimates of the Effect of an Environmental Policy Shock

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  • Jared C. Carbone
  • Nicholas Rivers
  • Akio Yamazaki
  • Hidemichi Yonezawa

Abstract

We compare the employment effect of the British Columbia carbon tax using two empirical methods: a reduced-form econometric model and counterfactual simulations conducted using an applied general equilibrium (CGE) model. The comparison allows us to test the theory-driven predictions of the CGE model. It also allows us to test the identification strategy of our econometric model. Ex post, we find statistically and economically significant effects on sectoral employment levels from the carbon tax—with employment falling in the most carbon-intensive sectors and rising in the least carbon intensive. The CGE model predicts employment responses of very similar sign and magnitude to our econometric estimates. We find no evidence to suggest that our econometric estimates are likely to be undermined by general equilibrium effects in this policy setting. Finally, we explore the use of the econometric estimates to deepen the empirical content of the CGE model.

Suggested Citation

  • Jared C. Carbone & Nicholas Rivers & Akio Yamazaki & Hidemichi Yonezawa, 2020. "Comparing Applied General Equilibrium and Econometric Estimates of the Effect of an Environmental Policy Shock," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 7(4), pages 687-719.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/708734
    DOI: 10.1086/708734
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    Cited by:

    1. Kumbhakar, Subal C. & Badunenko, Oleg & Willox, Michael, 2022. "Do carbon taxes affect economic and environmental efficiency? The case of British Columbia’s manufacturing plants," Energy Economics, Elsevier, vol. 115(C).
    2. Turner, Karen & Alabi, Oluwafisayo & Katris, Antonios & Swales, Kim, 2022. "The importance of labour market responses, competitiveness impacts, and revenue recycling in determining the political economy costs of broad carbon taxation in the UK," Energy Economics, Elsevier, vol. 116(C).
    3. Jared C. Carbone & Linda T.M. Bui & Don Fullerton & Sergey Paltsev & Ian Sue Wing, 2022. "When and How to Use Economy-Wide Models for Environmental Policy Analysis," Annual Review of Resource Economics, Annual Reviews, vol. 14(1), pages 447-465, October.
    4. Deven Azevedo & Hendrik Wolff & Akio Yamazaki, 2023. "Do Carbon Taxes Kill Jobs? Firm-Level Evidence From British Columbia," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 14(02), pages 1-46, May.
    5. Werner Hölzl & Serguei Kaniovski & Bettina Meinhart & Franz Sinabell & Gerhard Streicher, 2023. "Wettbewerbsfähigkeit der österreichischen Industrie bei weiterhin hohen Energiepreisen," WIFO Studies, WIFO, number 70789, Juni.
    6. Rafaty, R. & Dolphin, G. & Pretis, F., 2020. "Carbon pricing and the elasticity of CO2 emissions," Cambridge Working Papers in Economics 20116, Faculty of Economics, University of Cambridge.
    7. Rafaty, Ryan & Dolphin, Geoffroy & Pretis, Felix, 2021. "Carbon Pricing and the Elasticity of CO2 Emissions," RFF Working Paper Series 21-33, Resources for the Future.
    8. Ferguson, Shon & Heijmans, Roweno J.R.K., 2023. "Climate Policy and Trade in Polluting Technologies," Working Paper Series 1470, Research Institute of Industrial Economics.
    9. Cao, June & Li, Wenwen & Hasan, Iftekhar, 2023. "The impact of lowering carbon emissions on corporate labour investment: A quasi-natural experiment," Energy Economics, Elsevier, vol. 121(C).

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    More about this item

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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