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Six Distributional Effects of Environmental Policy

13 Pages Posted: 18 Jan 2011  

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)

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Date Written: December 30, 2010

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.

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

JEL Classification: H23, Q52

Suggested Citation

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

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)

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Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

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