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Regional and Aggregate Economic Consequences of Environmental Policy

Author

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  • Schmitz, Tom
  • Colantone, Italo
  • Ottaviano, Gianmarco

Abstract

This paper evaluates the economic effects of environmental policy in the presence of general equilibrium spillovers. Focusing on a major change in U.S. air pollution regulations, we combine microeconometric evidence on local and industry-level impacts with a quantitative spatial equilibrium model that captures trade and labor market interactions. Using reduced-form estimates to discipline the model, we quantify aggregate employment and welfare effects that are not identified by partial equilibrium approaches. We find that the policy substantially reduced fine particle emissions, but also led to sizable employment losses. Ignoring general equilibrium spillovers materially overstates job losses in polluting industries while understating employment losses in clean industries. When both economic costs and emission-related amenity gains are taken into account, the welfare benefits of cleaner air dominate.

Suggested Citation

  • Schmitz, Tom & Colantone, Italo & Ottaviano, Gianmarco, 2024. "Regional and Aggregate Economic Consequences of Environmental Policy," CEPR Discussion Papers 19221, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19221
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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