Environmental Policy in General Equilibrium: New Insights from a Canonical Model

53 Pages Posted: 27 Oct 2020

See all articles by Cloé Garnache

Cloé Garnache

University of Oslo, Department of Economics

Pierre R. Mérel

University of California, Davis - Department of Agricultural and Resource Economics

Date Written: 2020

Abstract

This paper derives the incidence of a pollution tax in a stylized general equilibrium framework, building on previous work by Fullerton and Heutel (2007a). Using the CPI as numeraire, we show that tax incidence is a simpler problem than previously thought, and that general insights can be derived without the need to restrict the parameter space. In addition, the counterintuitive possibility that an increase in the tax could increase the pollution level vanishes. The choice of the CPI as numeraire is further justified by the fact that environmental taxes, notably carbon taxes, are typically indexed on inflation.

Keywords: tax incidence, general equilibrium, relative prices, numeraire

JEL Classification: Q520, H230, H220

Suggested Citation

Garnache, Cloe and Mérel, Pierre R., Environmental Policy in General Equilibrium: New Insights from a Canonical Model (2020). CESifo Working Paper No. 8354, Available at SSRN: https://ssrn.com/abstract=3628941 or http://dx.doi.org/10.2139/ssrn.3628941

Cloe Garnache (Contact Author)

University of Oslo, Department of Economics ( email )

Postboks 1095
Oslo, 0317
Norway

HOME PAGE: http://www.cloegarnache.com

Pierre R. Mérel

University of California, Davis - Department of Agricultural and Resource Economics ( email )

One Shields Avenue
Davis, CA 95616
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
44
Abstract Views
239
PlumX Metrics