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Environmental Policy in General Equilibrium: New Insights from a Canonical Model

Author

Listed:
  • Cloé Garnache
  • Pierre Mérel

Abstract

This paper derives the incidence of a pollution tax in a stylized general equilibrium framework, building on previous work by Fullerton and Heutel. Using the CPI as numeraire, we show that tax incidence is a simpler problem than previously thought and that general insights can be derived without the need to restrict the parameter space. In addition, the counterintuitive possibility that an increase in the tax could increase the pollution level vanishes. The choice of the CPI as numeraire is further justified by the fact that environmental taxes, notably carbon taxes, are typically indexed on inflation.

Suggested Citation

  • Cloé Garnache & Pierre Mérel, 2022. "Environmental Policy in General Equilibrium: New Insights from a Canonical Model," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(1), pages 113-140.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/716229
    DOI: 10.1086/716229
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    Cited by:

    1. Bengt Kriström & Klarizze anne Puzon, 2023. "Time vs. money metrics for contingent valuation surveys: Theory and correlations from data on two marine ecosystems Theory and correlations from data on two marine ecosystems," Economics Bulletin, AccessEcon, vol. 43(2), pages 700-718.
    2. Heutel, Garth & Zhang, Xin, 2021. "Efficiency wages, unemployment, and environmental policy," Energy Economics, Elsevier, vol. 104(C).
    3. Daniel H. Karney & Don Fullerton & Kathy Baylis, 2025. "A Model of the Model: Unpacking CGE Results on Carbon Leakage," CESifo Working Paper Series 12332, CESifo.
    4. Karayalcin,Cem & Onder,Harun, 2024. "Environmental Policy under Weak Institutions," Policy Research Working Paper Series 10719, The World Bank.

    More about this item

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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