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Six Distributional Effects of Environmental Policy


Don Fullerton


University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

December 30, 2010

CESifo Working Paper Series No. 3299

Abstract:     
While prior literature has identified various effects of environmental policy, this note uses the example of a proposed carbon permit system to illustrate and discuss six different types of distributional effects: (1) higher prices of carbon-intensive products, (2) changes in relative returns to factors like labor, capital, and resources, (3) allocation of scarcity rents from a restricted number of permits, (4) distribution of the benefits from improvements in environmental quality, (5) temporary effects during the transition, and (6) capitalization of all those effects into prices of land, corporate stock, or house values. The note also discusses whether all six effects could be regressive, that is, whether carbon policy could place disproportionate burden on the poor.

Number of Pages in PDF File: 13

Keywords: tax incidence, climate policy, capitalization effects, general equilibrium

JEL Classification: H23, Q52

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Date posted: January 18, 2011  

Suggested Citation

Fullerton, Don, Six Distributional Effects of Environmental Policy (December 30, 2010). CESifo Working Paper Series No. 3299. Available at SSRN: http://ssrn.com/abstract=1742737

Contact Information

Don Fullerton (Contact Author)
University of Illinois at Urbana-Champaign - Department of Finance ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
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