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

Cloé Garnache and Pierre Mérel ()

No 8354, CESifo Working Paper Series from CESifo

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 (search for similar items in EconPapers)
JEL-codes: H22 H23 Q52 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Environmental Policy in General Equilibrium: New Insights from a Canonical Model (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8354

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