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When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets AgEcon
Parry, Ian W.H.; Williams, Roberton C., III; Goulder, Lawrence H..
This paper employs analytical and numerical general equilibrium models to assess the efficiency impacts of two policies to reduce U.S. carbon emissions - a revenue-neutral carbon tax and a non-auctioned carbon quota - taking into account the interactions between these policies and pre-existing tax distortions in factor markets. We show that tax interactions significantly raise the costs of both policies relative to what they would be in a first-best setting. In addition, we show that these interactions put the carbon quota at a significant efficiency disadvantage relative to the carbon tax: for example, the costs of reducing emissions by 10 percent are more than three times as high under the carbon quota as under the carbon tax. This disadvantage reflects...
Tipo: Working or Discussion Paper Palavras-chave: Carbon tax; Carbon quota; Pre-existing taxes; Welfare effects; Environmental Economics and Policy; L51; H23; D52.
Ano: 1998 URL: http://purl.umn.edu/10514
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