Household Incidence of Pollution Control Policies: A Robust Welfare Analysis Using General Equilibrium Effects

Abdelkrim Araar, Yazid Dissou and Jean-Yves Duclos

No 0805E, Working Papers from University of Ottawa, Department of Economics

Abstract: This study assesses the incidence of pollution control policies on households. In contrast to previous studies, we employ an integrated framework combining a multisector general equilibrium model with a stochastic dominance analysis using household-level data. We consider three policy instruments in a domestic emission trading system: (i) an output-based allocation of permits (OBA); (ii) the use of the proceeds of permit sales to reduce payroll taxes (RPT); (iii) and the use of these proceeds to reduce consumption taxes instead(UCS). The general equilibrium results suggest that the return to capital is more negatively affected than the wage rate in all simulations, since polluting industries are capital intensive. Abstracting from pollution externalities, the dominance analysis allows us to conclude that all three policies have a normatively robust negative (positive) impact on welfare (poverty). Formal dominance tests indicate that RPT first-order welfare dominates OBA over all values of household incomes. UCS also first-order poverty dominates RPT for any choice of poverty line below $CAN 18,600, and for any poverty line at the second order. Finally, while the three pollution control policies do not have a numerically large impact on inequality (in comparison to the base run), statistical tests indicate that inequality increases statistically more with OBA and RPT than with UCS.

Keywords: Pollution control policies; household incidence; stochastic dominance; general equilibrium effects. (search for similar items in EconPapers)
JEL-codes: C68 D31 D58 D63 H23 Q52 Q56 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2008
New Economics Papers: this item is included in nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Household incidence of pollution control policies: A robust welfare analysis using general equilibrium effects (2011)
Working Paper: Household Incidence of Pollution Control Policies: a Robust Welfare Analysis Using General Equilibrium Effects (2008)
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