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 Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 200502.
Length: 22 pages
Date of creation: Feb 2005
Date of revision: Feb 2005
Environmental Policy; Dualistic Economy; Distribution;
Other versions of this item:
- Yusuf, Arief Anshory, 2007. "Who Pay for the Cleaner Air? Distributional Impact of Environmental Policy in a Dualistic Economy," MPRA Paper 1735, University Library of Munich, Germany.
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
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