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Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices

Author

Listed:
  • Fullerton Don

    (University of Illinois at Urbana-Champaign)

  • Heutel Garth

    (The University of North Carolina at Greensboro)

Abstract

Using an analytical general equilibrium model, we find solutions for the effect of energy policy on factor prices as well as output prices. We calibrate the model to the U.S. economy, and we consider a tax on carbon dioxide. By looking at expenditure and income patterns across household groups, we quantify the uses-side and sources-side incidence of the tax. When households are categorized either by annual income or by total annual consumption as a proxy for permanent income, the uses-side incidence is regressive. This result is robust to sensitivity analysis over various parameter values. The sources-side incidence can be progressive, U-shaped, or regressive. Results on the sources side are sensitive to parameter values.

Suggested Citation

  • Fullerton Don & Heutel Garth, 2011. "Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-26, January.
  • Handle: RePEc:bpj:bejeap:v:10:y:2011:i:2:n:15
    DOI: 10.2202/1935-1682.2530
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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