Environmental Policy Making in Economies with Prior Tax Distortions

In evaluating environmental policy, researchers have tended to focus on the industry or market that is targeted by regulation and to disregard policy impacts in other parts of the economy. Recent research indicates, however, that in economies where governments rely on distortionary taxes, environmental regulation can profoundly affect costs and efficiency in areas other than the targeted industry or market. These findings signal the importance of evaluating environmental policy using a general equilibrium framework – an approach that can capture interactions across industries, sectors or markets. General equilibrium analysis can fundamentally alter the evaluation of environmental tax policies, and can overturn conventional wisdom concerning the relative cost-effectiveness of environmental taxes, emissions quotas, or mandated technologies.

This volume gathers together important papers on the general equilibrium impacts of environmental regulation in the presence of distortionary taxes. Topics include optimal environmental taxation,’green tax reform’ and the ‘double dividend’, and the choice among alternative policy instruments. The volume will be of interest to environmental economists, public finance economists and researchers interested in the economics of regulation.