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Comparing Applied General Equilibrium and Econometric Estimates of the Effect of an Environmental Policy Shock

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  • Jared C. Carbone
  • Nicholas Rivers
  • Akio Yamazaki
  • Hidemichi Yonezawa

Abstract

We compare the employment effect of the British Columbia carbon tax using two empirical methods: a reduced-form econometric model and counterfactual simulations conducted using an applied general equilibrium (CGE) model. The comparison allows us to test the theory-driven predictions of the CGE model. It also allows us to test the identification strategy of our econometric model. Ex post, we find statistically and economically significant effects on sectoral employment levels from the carbon tax—with employment falling in the most carbon-intensive sectors and rising in the least carbon intensive. The CGE model predicts employment responses of very similar sign and magnitude to our econometric estimates. We find no evidence to suggest that our econometric estimates are likely to be undermined by general equilibrium effects in this policy setting. Finally, we explore the use of the econometric estimates to deepen the empirical content of the CGE model.

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  • Jared C. Carbone & Nicholas Rivers & Akio Yamazaki & Hidemichi Yonezawa, 2020. "Comparing Applied General Equilibrium and Econometric Estimates of the Effect of an Environmental Policy Shock," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 7(4), pages 687-719.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/708734
    DOI: 10.1086/708734
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    Cited by:

    1. Ryan Rafaty & Geoffroy Dolphin & Felix Pretis, 2020. "Carbon pricing and the elasticity of CO2 emissions," Working Papers EPRG2035, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Kumbhakar, Subal C. & Badunenko, Oleg & Willox, Michael, 2022. "Do carbon taxes affect economic and environmental efficiency? The case of British Columbia’s manufacturing plants," Energy Economics, Elsevier, vol. 115(C).
    3. Turner, Karen & Alabi, Oluwafisayo & Katris, Antonios & Swales, Kim, 2022. "The importance of labour market responses, competitiveness impacts, and revenue recycling in determining the political economy costs of broad carbon taxation in the UK," Energy Economics, Elsevier, vol. 116(C).
    4. Ferguson, Shon & Heijmans, Roweno J.R.K., 2023. "Climate Policy and Trade in Polluting Technologies," Working Paper Series 1470, Research Institute of Industrial Economics.
    5. Li, Xiaoyang & Huang, Guohe & Wang, Shuguang & Zhang, Xiaoyue & Luo, Bin, 2025. "Synergistic Management of Water, energy, and carbon: A case Study from Shandong Province, China," Applied Energy, Elsevier, vol. 381(C).
    6. Jared C. Carbone & Linda T.M. Bui & Don Fullerton & Sergey Paltsev & Ian Sue Wing, 2022. "When and How to Use Economy-Wide Models for Environmental Policy Analysis," Annual Review of Resource Economics, Annual Reviews, vol. 14(1), pages 447-465, October.
    7. Deven Azevedo & Hendrik Wolff & Akio Yamazaki, 2023. "Do Carbon Taxes Kill Jobs? Firm-Level Evidence From British Columbia," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 14(02), pages 1-46, May.
    8. Osanya, Jessica & Reimer, Jeff J., 2024. "Economywide Impacts of the Supplemental Nutrition Assistance Program," 2024 Annual Meeting, July 28-30, New Orleans, LA 343900, Agricultural and Applied Economics Association.
    9. Rafaty, Ryan & Dolphin, Geoffroy & Pretis, Felix, 2025. "Carbon pricing and the elasticity of CO2 emissions," Energy Economics, Elsevier, vol. 144(C).
    10. Matterne, Ilias & Roggeman, Annelies & Verleyen, Isabelle, 2024. "The impact of environmental taxation on innovation: Evidence from Canada," Energy Policy, Elsevier, vol. 187(C).
    11. Angela Köppl & Margit Schratzenstaller, 2023. "Carbon taxation: A review of the empirical literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(4), pages 1353-1388, September.
    12. Kumbhakar, Subal C. & Badunenko, Oleg & Willox, Michael, 2025. "Corrigendum to “Do carbon taxes affect economic and environmental efficiency? The case of British Columbia's manufacturing plants” [Energy Economics Volume 115, November 2022, 106359]," Energy Economics, Elsevier, vol. 144(C).
    13. Werner Hölzl & Serguei Kaniovski & Bettina Meinhart & Franz Sinabell & Gerhard Streicher, 2023. "Wettbewerbsfähigkeit der österreichischen Industrie bei weiterhin hohen Energiepreisen," WIFO Studies, WIFO, number 70789.
    14. Cao, June & Li, Wenwen & Hasan, Iftekhar, 2023. "The impact of lowering carbon emissions on corporate labour investment: A quasi-natural experiment," Energy Economics, Elsevier, vol. 121(C).
    15. Srabashi Ray & Thomas W. Hertel, 2025. "Effectiveness and Distributional Impacts of Conservation Policies: The Role of Labor Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 88(5), pages 1147-1193, May.

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    More about this item

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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