The International Yearbook of Environmental and Resource Economics 2006/2007

The International Yearbook of Environmental and Resource Economics 2006/2007

A Survey of Current Issues

New Horizons in Environmental Economics series

Edited by Tom Tietenberg and Henk Folmer

This major annual publication presents a comprehensive overview of cutting-edge issues in environmental and resource economics.

Chapter 1: The Incidence of Pollution Control Policies

Ian W.H. Parry, Hilary Sigman, Margaret Walls and Robertson C Williams III

Subjects: economics and finance, environmental economics, environment, environmental economics


* Ian W.H. Parry, Hilary Sigman, Margaret Walls and Roberton C. Williams III 1. INTRODUCTION Economic evaluations of pollution control policies have traditionally focused on pure efficiency effects – either a comparison of their economic costs and environmental benefits, or a comparison of their costs relative to those of alternative control policies (e.g., Cropper and Oates 1992, Morgenstern 1997, Hahn 2005). However, the distribution of policy costs and benefits across households and firms is receiving increasing attention among researchers and policymakers.1 One reason is concern about whether a policy is ‘fair’ or not. Another is political feasibility – a policy justifiable on efficiency grounds may be impractical if it imposes a disproportionate burden on a politically influential group. Often the two are critically related; for example, political opposition to higher fuel taxes, carbon taxes, or other emissions taxes in the USA is frequently based on the claim that such taxes fall most heavily on low-income groups. The purpose of this chapter is to summarize what is actually known, and not known, about the incidence of benefits and costs from pollution taxes, and alternative emissions control measures, across household income groups. Distributional issues have many diverse dimensions and we omit a number of topics, some of which have been comprehensively reviewed elsewhere. We do not discuss racial incidence. Evidence on this is discussed in Hamilton (2005); the main finding is that, in addition to income, other factors such as lack of participation in local decision-making explain...

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