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Evaluating policy interventions with general equilibrium externalities

  • Carbone, Jared C.
  • Smith, V. Kerry

We report on the results of analytical and numerical models that describe the effects of non-separable externalities (or public goods) on public policies with important general equilibrium consequences. In the numerical exercise, we calibrate a general equilibrium model with non-separable air quality benefits in order to measure the excess burden and total net benefits of transportation and energy taxes in the 1995 U.S. economy. The change in the physical level and the economic value in air quality associated with a given policy is a function of the substitution patterns between air quality and market goods that we assume. The size of the deadweight loss due to pre-existing distortions such as a tax on labor income is substantially affected by these substitution patterns.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 92 (2008)
Issue (Month): 5-6 (June)
Pages: 1254-1274

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Handle: RePEc:eee:pubeco:v:92:y:2008:i:5-6:p:1254-1274
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Robin Boadway & Michael Keen, 1991. "Public Goods, Self-Selection and Optimal Income Taxation," Working Papers 828, Queen's University, Department of Economics.
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  8. Williams, Roberton III, 2002. "Environmental Tax Interactions when Pollution Affects Health or Productivity," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 261-270, September.
  9. Lawrence H. Goulder & Roberton C. Williams III, 2003. "The Substantial Bias from Ignoring General Equilibrium Effects in Estimating Excess Burden, and a Practical Solution," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 898-927, August.
  10. Don Fullerton & Gilbert Metcalf, 1997. "Environmental Controls, Scarcity Rents, and Pre-Existing Distortions," NBER Working Papers 6091, National Bureau of Economic Research, Inc.
  11. Williams III, Roberton C., 2003. "Health effects and optimal environmental taxes," Journal of Public Economics, Elsevier, vol. 87(2), pages 323-335, February.
  12. Smith, V Kerry & Huang, Ju-Chin, 1995. "Can Markets Value Air Quality? A Meta-analysis of Hedonic Property Value Models," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 209-27, February.
  13. Diamond, Peter A & Mirrlees, James A, 1973. "Aggregate Production with Consumption Externalities," The Quarterly Journal of Economics, MIT Press, vol. 87(1), pages 1-24, February.
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  15. Sandmo, Agnar, 1980. "Anomaly and Stability in the Theory of Externalities," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 799-807, June.
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