Social and Behavioral Sciences Commons^™

Multiple Pollutants, Unovered Sectors, And Suboptimal Environmental Policies, Daniel Karney, Don Fullerton

Daniel H Karney

In our analytical general equilibrium model where two polluting inputs can be substitutes or complements in production, we study the effects of a tax on one pollutant in two cases: one where both pollutants face taxes and the second where the other pollutant is subject to a permit policy. In each case, we solve for closed-form solutions that highlight important parameters. We demonstrate two important ways that environmental taxes and permits are not equivalent. First, the change in the pollutant facing a tax increase depends on whether the other pollutant is subject to a tax or permit policy. Second, if …