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

26 Pages Posted: 1 Mar 2010 Last revised: 14 Sep 2013

See all articles by Don Fullerton

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)

Garth Heutel

University of North Carolina (UNC) at Greensboro - Department of Economics

Date Written: February 2010

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

Fullerton, Don and Heutel, Garth, Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices (February 2010). NBER Working Paper No. w15788. Available at SSRN: https://ssrn.com/abstract=1560923

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

Garth Heutel

University of North Carolina (UNC) at Greensboro - Department of Economics ( email )

Greensboro, NC 27402-6165
United States

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