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The General Equilibrium Incidence of Environmental Mandates

  • Don Fullerton
  • Garth Heutel

Pollution regulations affect factor demands, relative returns, production, and output prices. In our model, one sector includes pollution as an input that can be a complement or substitute for labor or capital. For each type of mandate, we find conditions where more burden is on labor or on capital. Stricter regulation does not always place less burden on the better substitute for pollution. Also, restrictions on pollution per unit output create an "output-subsidy effect" on factor prices that can reverse the usual output and substitution effects. We find analogous effects for a restriction on pollution per unit capital. (JEL H23, Q53, Q58)

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Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 2 (2010)
Issue (Month): 3 (August)
Pages: 64-89

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Handle: RePEc:aea:aejpol:v:2:y:2010:i:3:p:64-89
Note: DOI: 10.1257/pol.2.3.64
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