TY  - JOUR
AU  - Fullerton,Don
AU  - Metcalf,Gilbert
TI  - Environmental Controls, Scarcity Rents, and Pre-Existing Distortions
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6091
PY  - 1997
Y2  - July 1997
UR  - http://www.nber.org/papers/w6091
L1  - http://www.nber.org/papers/w6091.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

Gilbert E. Metcalf
Room 3221
Department of the Treasury
Washington, DC 20220
1500 Pennsylvania Ave., NW
Tel: 202-622-0173
E-Mail: gilbert.metcalf@tufts.edu
AB  - Debate about the Double Dividend Hypothesis has focused on whether an environmental policy raises revenue that can be used to cut other distorting taxes.  In this paper, we show that this focus is misplaced.  We derive welfare results for alternative policies in a series of analytical general equilibrium models with clean and dirty goods that might be produced using emissions as well as other resources, in the presence of other pre-existing distortions such as labor taxes or even monopoly pricing.  We show that the same welfare effects of environmental protection can be achieved, without exacerbating the labor distortion, by taxes that raise revenue, certain command and control regulations that raise no revenue, and even subsidies that cost revenue. Instead, the pre-existing labor tax distortion is exacerbated by policies that generate privately-retained scarcity rents.  These rents raise the cost of production, raise equilibrium output prices, and thus reduce the real net wage.  Such policies include both quantity-restricting command and control policies and certain marketable permit policies.
ER  -