TY  - JOUR
AU  - Fullerton,Don
AU  - Karney,Daniel
AU  - Baylis,Kathy
TI  - Negative Leakage
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17001
PY  - 2011
Y2  - April 2011
UR  - http://www.nber.org/papers/w17001
L1  - http://www.nber.org/papers/w17001.pdf
N1  - Author contact info:
Don Fullerton
Department of Finance
University of Illinois
BIF Box#30 (MC520)
515 East Gregory Drive
Champaign, IL  61820
Tel: 217/244-3621
Fax: 217/244-3102
E-Mail: dfullert@illinois.edu

Daniel H. Karney
Department of Economics
University of Illinois
David Kinley Hall
Champaign, IL 61820
E-Mail: dkarney2@illinois.edu

Kathy Baylis
Department of Agricultural
  and Consumer Economics
University of Illinois
Mumford Hall
Urbana, IL  61801
E-Mail: baylis@illinois.edu
AB  - We build a simple analytical general equilibrium model and linearize it, to find a closed-from expression for the effect of a small change in carbon tax on leakage – the increase in emissions elsewhere.  The model has two goods produced in two sectors or regions. Many identical consumers buy both goods using income from a fixed stock of capital that is mobile between sectors. An increase in one sector’s carbon tax raises the price of its output, so consumption shifts to the other good, causing positive carbon leakage.  However, the taxed sector substitutes away from carbon into capital.  It thus absorbs capital, which shrinks the other sector, causing negative leakage. This latter effect could swamp the former, reducing carbon emissions in both sectors.
ER  -