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The General Equilibrium Incidence of Environmental Mandates

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  • Don Fullerton
  • Garth Heutel

Abstract

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)

Suggested Citation

  • Don Fullerton & Garth Heutel, 2010. "The General Equilibrium Incidence of Environmental Mandates," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 64-89, August.
  • 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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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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