Who Pay for the Cleaner Air? Distributional Impact of Environmental Policy in a Dualistic Economy
AbstractUsing a technology where pollution is regarded as by-product of industry's activity and applied in a simple setup of Heckscher-Ohlin-Copeland-Taylor model, this paper analyses the possible distributional impacts of stricter environmental policy in a developing country characterized by the presence of labor-intensive informal sector which may not be a subject to the environmental regulation, and capital intensive formal sector which may face minimum wage policy. The comparative static analysis illustrates that stricter environmental regulation if enforced uniformly accross industries in undistorted labor market, hurts both labor and capital owner, leaving income ditribution unchanged. On the contrary, when economy is dualistic, income distribution may change due to labor reallocation. When the stricter regulation can only be enforced in formal sector, capital owner will be worse-off while labor are better-off. If initially capital reward is higher, the environmental policy will improve income distribution in favor of labor. The change in income distribution is greater when economy is dualistic.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 1735.
Date of creation: 10 Feb 2007
Date of revision:
Environmental Policy; Dualistic Economy; Distribution;
Other versions of this item:
- Arief Anshory Yusuf, 2005. "Who Pay for the Cleaner Air? Distributional Impact of Environmental Policy in a Dualistic Economy," Working Papers in Economics and Development Studies (WoPEDS), Department of Economics, Padjadjaran University 200502, Department of Economics, Padjadjaran University, revised Feb 2005.
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-02-17 (All new papers)
- NEP-ENE-2007-02-17 (Energy Economics)
- NEP-ENV-2007-02-17 (Environmental Economics)
- NEP-REG-2007-02-17 (Regulation)
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