IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/8049.html
   My bibliography  Save this paper

Environmental Tax Interactions When Pollution Affects Health or Productivity

Author

Listed:
  • Roberton C. Williams

Abstract

Numerous recent studies have indicated that interactions with a tax-distorted labor market increase the cost of pollution regulation. However, these studies have made restrictive assumptions regarding individual preferences and have ignored key links between pollution, human health, and labor productivity. Together, these assumptions imply that the benefits of regulation do not affect labor supply. This paper develops an analytically tractable general equilibrium model that allows regulation to provide benefits through several different channels, including improved health or productivity. The model shows that when the benefits of reduced pollution come in the form of improved health or productivity, the benefits do affect labor supply, and therefore create a benefit-side tax-interaction effect in addition to the familiar cost-side interaction. This effect can magnify or diminish the benefits of reduced pollution. When reduced pollution boosts labor productivity, the effect substantially magnifies such benefits. When pollution affects consumer health, the effect will tend to be opposite, diminishing the benefits of reduced pollution. This result is of far more than just theoretical interest; the benefit-side interaction is of the same magnitude as the cost-side interaction, and thus can fundamentally affect the optimal level of regulation. The paper considers only environmental regulation, but the concepts developed here apply equally to other policies affecting productivity or health, such as research subsidies or occupational safety regulations.

Suggested Citation

  • Roberton C. Williams, 2000. "Environmental Tax Interactions When Pollution Affects Health or Productivity," NBER Working Papers 8049, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8049
    Note: PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w8049.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September.
    2. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-1089, September.
    3. Browning, Edgar K, 1987. "On the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 77(1), pages 11-23, March.
    4. Lawrence H. Goulder & Ian W.H. Parry & Roberton C. Williams III & Dallas Burtraw, 2002. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 27, pages 523-554, Edward Elgar Publishing.
    5. repec:bla:scandj:v:96:y:1994:i:3:p:343-63 is not listed on IDEAS
    6. Victor R. Fuchs & Alan B. Krueger & James M. Poterba, 1998. "Economists' Views about Parameters, Values, and Policies: Survey Results in Labor and Public Economics," Journal of Economic Literature, American Economic Association, vol. 36(3), pages 1387-1425, September.
    7. Don Fullerton & Gilbert E. Metcalf, 2002. "Environmental Controls, Scarcity Rents, and Pre-existing Distortions," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 26, pages 504-522, Edward Elgar Publishing.
    8. Ian W.H. Parry, 2002. "Pollution Taxes and Revenue Reycling," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 15, pages 235-248, Edward Elgar Publishing.
    9. Bovenberg, A Lans & van der Ploeg, Frederick, 1993. "Green Policies in a Small Open Economy," CEPR Discussion Papers 785, C.E.P.R. Discussion Papers.
    10. Williams III, Roberton C., 1999. "Revisiting the cost of protectionism:: The role of tax distortions in the labor market," Journal of International Economics, Elsevier, vol. 47(2), pages 429-447, April.
    11. Ian W.H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 2002. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 25, pages 471-503, Edward Elgar Publishing.
    12. Lawrence H. Goulder & Ian W.H. Parry & Dallas Burtraw, 2002. "Revenue-Raising versus Other Approaches to Environmental Protection: The Critical Significance of Preexisting Tax Distortions," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 24, pages 447-470, Edward Elgar Publishing.
    13. Bovenberg, A.L. & Goulder, L.H., 1996. "Optimal environmental taxation in the presence of other taxes : General equilibrium analyses," Other publications TiSEM 5d4b7517-c5c8-4ef6-ab76-3, Tilburg University, School of Economics and Management.
    14. Bovenberg, A. Lans & Goulder, Lawrence H., 1997. "Costs of Environmentally Motivated Taxes in the Presence of Other Taxes: General Equilibrium Analyses," National Tax Journal, National Tax Association;National Tax Journal, vol. 50(1), pages 59-88, March.
    15. Bovenberg, A. Lans & Goulder, Lawrence H., 1997. "Costs of Environmentally Motivated Taxes in the Presence of Other Taxes: General Equilibrium Analyses," National Tax Journal, National Tax Association, vol. 50(1), pages 59-88, March.
    16. Bovenberg, A Lans & de Mooij, Ruud A, 1997. "Environmental Levies and Distortionary Taxation: Reply," American Economic Review, American Economic Association, vol. 87(1), pages 252-253, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sarah E. West & Roberton C. Williams, 2004. "Empirical Estimates for Environmental Policy Making in a Second-Best Setting," NBER Working Papers 10330, National Bureau of Economic Research, Inc.
    2. Parry, Ian W.H. & Oates, Wallace E., 1998. "Policy Analysis in a Second-Best World," Discussion Papers 10687, Resources for the Future.
    3. Ian W. H. Parry, 2003. "Fiscal Interactions and the Case for Carbon Taxes Over Grandfathered Carbon Permits," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(3), pages 385-399.
    4. Lawrence H. Goulder, 1998. "Environmental Policy Making in a Second-Best Setting," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 279-328, November.
    5. Lawrence H. Goulder & Ian W.H. Parry & Roberton C. Williams III & Dallas Burtraw, 2002. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 27, pages 523-554, Edward Elgar Publishing.
    6. Bovenberg, A. Lans & Goulder, Lawrence H., 2002. "Environmental taxation and regulation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 23, pages 1471-1545, Elsevier.
    7. Fullerton, Don & Metcalf, Gilbert E., 2002. "Cap and trade policies in the presence of monopoly and distortionary taxation," Resource and Energy Economics, Elsevier, vol. 24(4), pages 327-347, November.
    8. A. Lans Bovenberg & Lawrence H. Goulder, 2001. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does It Cost?," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 45-90, National Bureau of Economic Research, Inc.
    9. Jean-Christophe Caffet, 2005. "Health effects and optimal environmental taxes in welfare state countries," Cahiers de la Maison des Sciences Economiques v05049, Université Panthéon-Sorbonne (Paris 1).
    10. Ian W.H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 2002. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 25, pages 471-503, Edward Elgar Publishing.
    11. Parry, Ian & Bento, Antonio, 1999. "Tax Deductible Spending, Environmental Policy, and the "Double Dividend" Hypothesis," RFF Working Paper Series dp-99-24, Resources for the Future.
    12. : Eduardo L. Giménez (a) & Miguel Rodríguez, "undated". "Pigou’S Dividend Versus Ramsey’S Dividend In The Double Dividend Literature," Working Papers 2-06 Classification-JEL :, Instituto de Estudios Fiscales.
    13. Williams III, Roberton C., 2003. "Health effects and optimal environmental taxes," Journal of Public Economics, Elsevier, vol. 87(2), pages 323-335, February.
    14. Don Fullerton & Gilbert E. Metcalf, 2002. "Environmental Controls, Scarcity Rents, and Pre-existing Distortions," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 26, pages 504-522, Edward Elgar Publishing.
    15. Burtraw, Dallas & Cannon, Matthew, 2000. "Heterogeneity in Costs and Second-Best Policies for Environmental Protection," RFF Working Paper Series dp-00-20, Resources for the Future.
    16. Mireille Chiroleu-Assouline, 2001. "Le double dividende. Les approches théoriques," Revue Française d'Économie, Programme National Persée, vol. 16(2), pages 119-147.
    17. Parry, Ian W.H., 2002. "Adjusting Carbon Cost Analyses to Account for Prior Tax Distortions," Discussion Papers 10481, Resources for the Future.
    18. Fischer, Carolyn & Fox, Alan, 2004. "Output-Based Allocations of Emissions Permits: Efficiency and Distributional Effects in a General Equilibrium Setting with Taxes and Trade," RFF Working Paper Series dp-04-37, Resources for the Future.
    19. Burtraw, Dallas & Palmer, Karen & Kahn, Daniel, 2005. "Allocation of CO2 Emissions Allowances in the Regional Greenhouse Gas Cap-and-Trade Program," RFF Working Paper Series dp-05-25, Resources for the Future.
    20. Cameron Hepburn, 2006. "Regulation by Prices, Quantities, or Both: A Review of Instrument Choice," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 22(2), pages 226-247, Summer.

    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8049. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.