Environmental Control, Wage Inequality and National Welfare for a Tourism Economy
This paper examines the effects of environmental control on income distribution and welfare for an open economy with inbound tourism. The pollution input is considered as a mobile factor between sectors, and a rise in it raises the wages of skilled labor in the traded sector but can weaken the wages of unskilled labor in the non-traded sector. Thus, lax policy on environmental controls can be a source of rising wage inequality between skilled and unskilled labor.In addition, loosened environmental control lowers the price of the non-traded good and thus reduces the revenue from tourism exports. Stricter controls on pollution emissions can therefore narrow the wage gap and promote residents’ welfare. Nonetheless, to improve the production efficiency of the non-traded good sector, permit prices of emissions may need to be lower under imperfect competition.
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