Environmental Controls, Scarcity Rents, and Pre-Existing Distortions
Abstract
One might suppose that an emissions tax has an advantage over command and control (CAC) regulations since it raises revenue that can be used to cut other distorting taxes. In this paper, we show that the focus on revenue raising is misplaced. In a simple analytical general equilibrium model, we show that the same welfare effects of environmental protection can be achieved, by taxes that raise revenue, certain command and control regulations that raise no revenue, and even subsidies that cost revenue. Instead, the pre existing labor tax distortion is exacerbated by policies that generate privately-retained scarcity rents.
Suggested Citation
Don Fullerton and Gilbert E. Metcalf. "Environmental Controls, Scarcity Rents, and Pre-Existing Distortions" Journal of Public Economics 80 (2001): 249-267.
Available at: http://works.bepress.com/don_fullerton/19
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