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Who Pays for the Pollution Fees? Cost Transmissions Along the Supply Chain

Author

Listed:
  • Ying Li
  • Lei Li
  • Zhi Su
  • Libo Yin

Abstract

This paper studies the propagation of environmental regulation along the supply chain and quantifies its welfare implications. By incorporating input-output linkages into the workhorse tax incidence model, we derive statistically sufficient representations of the incidence under a general imperfect competition framework. In the context of China’s SO2 emission regulation, we show that emission fees affect manufacturing producers through two channels. First, manufacturing producers bear the full brunt of emissions fees imposed directly on them. Second, emission fees imposed on their upstream suppliers translate into higher input costs faced by manufacturing producers, who bear 29% of the burden. Neglecting the role of the latter would result in an underestimation of 5%–13% of the cost burden for most industries.

Suggested Citation

  • Ying Li & Lei Li & Zhi Su & Libo Yin, 2023. "Who Pays for the Pollution Fees? Cost Transmissions Along the Supply Chain," CRC TR 224 Discussion Paper Series crctr224_2023_483, University of Bonn and University of Mannheim, Germany.
  • Handle: RePEc:bon:boncrc:crctr224_2023_483
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp483
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    More about this item

    Keywords

    Input-Output-Linkage; Emission Fees; Incidence; Pass-Through;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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