Policy analysis in the presence of distorting taxes
AbstractThis article first describes the new literature in environmental economics on the so-called “double-dividend” and then explores its implications for a broad range of economic issues. This literature reveals that in a second-best, general-equilibrium setting, environmental measures raise costs and prices and thereby reduce the real wage. This rise in the cost of living reduces slightly the quantity of labor supplied in an already highly distorted labor market, giving rise to losses in social welfare that can be large relative to the basic gains from a cleaner environment. These losses can be offset to some extent by using revenues (if any) from the environmental programs to reduce existing taxes on labor. This same line of analysis applies to many programs and institutions in the economy that raise the cost of living: tariffs and quotas on imports, agricultural price-support programs, monopoly pricing, programs of occupational licensure that limit entry, and many others. Thus, traditional, partial-equilibrium benefit-cost analysis appears, in many instances, to have unwittingly omitted from the calculations a potentially quite significant class of social costs. Â© 2000 by the Association for Public Policy and Management.
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Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Journal of Policy Analysis and Management.
Volume (Year): 19 (2000)
Issue (Month): 4 ()
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Web page: http://www3.interscience.wiley.com/journal/34787/home
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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MIT Press, vol. 81(4), pages 674-680, November.
- Martin Feldstein, 1995. "Tax Avoidance and the Deadweight Loss of the Income Tax," NBER Working Papers 5055, National Bureau of Economic Research, Inc.
- Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1997.
"When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets,"
dp-97-18-rev, Resources For the Future.
- Parry, Ian W. H. & Williams, Roberton III & Goulder, Lawrence H., 1999. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 52-84, January.
- Ian W. H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," NBER Working Papers 5967, National Bureau of Economic Research, Inc.
- Jorgenson, Dale W. & Wilcoxen, Peter J., 1993. "Reducing US carbon emissions: an econometric general equilibrium assessment," Resource and Energy Economics, Elsevier, vol. 15(1), pages 7-25, March.
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