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Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices

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  • Don Fullerton
  • Garth Heutel

Abstract

Using an analytical general equilibrium model, we find closed form solutions for the effect of energy policy on factor prices and output prices. We calibrate the model to the US economy, and we consider a tax on carbon. By looking at expenditure and income patterns across household groups, we quantify the uses-side and sources-side incidence of the tax. When households are categorized either by annual income or by total annual consumption as a proxy for permanent income, the uses-side incidence is regressive. This result is robust to sensitivity analysis over various parameter values. The sources-side incidence is also regressive, but this result is sensitive to parameter values. Incidence results across regions are also presented.

Suggested Citation

  • Don Fullerton & Garth Heutel, 2010. "Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices," NBER Working Papers 15788, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15788 Note: EEE PE
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    1. Dale W. Jorgenson & Mun S. Ho & Kevin J. Stiroh, 2008. "A Retrospective Look at the U.S. Productivity Growth Resurgence," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 3-24, Winter.
    2. Poterba, James M, 1989. "Lifetime Incidence and the Distributional Burden of Excise Taxes," American Economic Review, American Economic Association, vol. 79(2), pages 325-330, May.
    3. Rausch Sebastian & Metcalf Gilbert E. & Reilly John M & Paltsev Sergey, 2010. "Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 1-46.
    4. Gilbert E. Metcalf & Aparna Mathur & Kevin A. Hassett, 2011. "Distributional Impacts in a Comprehensive Climate Policy Package," NBER Chapters,in: The Design and Implementation of U.S. Climate Policy, pages 21-34 National Bureau of Economic Research, Inc.
    5. Burtraw, Dallas & Sweeney, Richard & Walls, Margaret, 2009. "The Incidence of U.S. Climate Policy: Alternative Uses of Revenues from a Cap-and-Trade Auction," Discussion Papers dp-09-17-rev, Resources For the Future.
    6. Kevin A. Hassett & Aparna Mathur & Gilbert E. Metcalf, 2009. "The Incidence of a U.S. Carbon Tax: A Lifetime and Regional Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 155-178.
    7. Don Fullerton & Garth Heutel, 2010. "The General Equilibrium Incidence of Environmental Mandates," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 64-89, August.
    8. West, Sarah E. & Williams, R.C.Roberton III, 2004. "Estimates from a consumer demand system: implications for the incidence of environmental taxes," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 535-558, May.
    9. Fullerton, Don & Heutel, Garth, 2007. "The general equilibrium incidence of environmental taxes," Journal of Public Economics, Elsevier, pages 571-591.
    10. Fullerton, Don & Heutel, Garth, 2007. "The general equilibrium incidence of environmental taxes," Journal of Public Economics, Elsevier, pages 571-591.
    11. Jin, Hui & Jorgenson, Dale W., 2010. "Econometric modeling of technical change," Journal of Econometrics, Elsevier, vol. 157(2), pages 205-219, August.
    12. Mieszkowski, Peter, 1972. "The property tax: An excise tax or a profits tax?," Journal of Public Economics, Elsevier, pages 73-96.
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    14. Burtraw, Dallas & Sweeney, Richard & Walls, Margaret, 2009. "The Incidence of U.S. Climate Policy: Alternative Uses of Revenues From a Cap-and-Trade Auction," National Tax Journal, National Tax Association, vol. 62(3), pages 497-518, September.
    15. Ruud de Mooij & A. Bovenberg, 1998. "Environmental Taxes, International Capital Mobility and Inefficient Tax Systems: Tax Burden vs. Tax Shifting," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 7-39.
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    Cited by:

    1. Gilbert E. Metcalf & Aparna Mathur & Kevin A. Hassett, 2011. "Distributional Impacts in a Comprehensive Climate Policy Package," NBER Chapters,in: The Design and Implementation of U.S. Climate Policy, pages 21-34 National Bureau of Economic Research, Inc.
    2. Rausch Sebastian & Metcalf Gilbert E. & Reilly John M & Paltsev Sergey, 2010. "Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-46, July.
    3. Kortum Samuel, 2011. "Comment on "Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices"," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-6, February.
    4. Beck, Marisa & Rivers, Nicholas & Wigle, Randall & Yonezawa, Hidemichi, 2015. "Carbon tax and revenue recycling: Impacts on households in British Columbia," Resource and Energy Economics, Elsevier, vol. 41(C), pages 40-69.
    5. Wichman, Casey J., 2017. "Information provision and consumer behavior: A natural experiment in billing frequency," Journal of Public Economics, Elsevier, pages 13-33.
    6. Ian Parry, 2015. "Carbon Tax Burdens on Low-Income Households: A Reason for Delaying Climate Policy?," CESifo Working Paper Series 5482, CESifo Group Munich.
    7. Don Fullerton & Garth Heutel & Gilbert E. Metcalf, 2012. "Does the Indexing of Government Transfers Make Carbon Pricing Progressive?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(2), pages 347-353.
    8. Alex Bowen, 2012. "�Green� growth, �green� jobs and labour markets," GRI Working Papers 76, Grantham Research Institute on Climate Change and the Environment.
    9. Rausch, Sebastian & Schwarz, Giacomo A., 2016. "Household heterogeneity, aggregation, and the distributional impacts of environmental taxes," Journal of Public Economics, Elsevier, pages 43-57.
    10. Bowen, Alex, 2012. "'Green'growth,'green'jobs and labor markets," Policy Research Working Paper Series 5990, The World Bank.
    11. Fullerton, Don & Monti, Holly, 2013. "Can pollution tax rebates protect low-wage earners?," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 539-553.
    12. Ian Parry & Baoping Shang & Nate Vernon & Philippe Wingender, 2016. "Evaluating Policies to Implement the Paris Agreement: A Toolkit with Application to China," CESifo Working Paper Series 6132, CESifo Group Munich.
    13. Joshua Blonz & Dallas Burtraw & Margaret Walls, 2012. "Social safety nets and US climate policy costs," Climate Policy, Taylor & Francis Journals, vol. 12(4), pages 474-490, July.
    14. Beck, Marisa & Rivers, Nicholas & Yonezawa, Hidemichi, 2016. "A rural myth? Sources and implications of the perceived unfairness of carbon taxes in rural communities," Ecological Economics, Elsevier, vol. 124(C), pages 124-134.
    15. Roberton C. Williams III & Hal Gordon & Dallas Burtraw & Jared C. Carbone & Richard D. Morgenstern, 2015. "The Initial Incidence of a Carbon Tax Across Income Groups," National Tax Journal, National Tax Association, vol. 68(1), pages 195-214, March.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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