Department of Economics
University of Miami
Coral Gables, FL 33124
Information about this author at RePEc
NBER Working Papers and Publications
|March 2013||Incidence and Environmental Effects of Distortionary Subsidies|
with Garth Heutel: w18924
Government policies that are not intended to address environmental concerns can nonetheless distort prices and affect firms' emissions. We present an analytical general equilibrium model to study the effect of distortionary subsidies on factor prices and on environmental outcomes. We model an output subsidy, a capital subsidy, relief from environmental regulation, and a direct cash subsidy. In exchange for receiving subsidies, firms must agree to a minimum level of labor employment. Each type of subsidy and the employment constraint create both output effects and substitution effects on input prices and emissions. We calibrate the model to the Chinese economy, where government involvement affects emissions from both state-owned enterprises and private firms. Variation in production s...
Published: Garth Heutel & David L. Kelly, 2016. "Incidence, Environmental, and Welfare Effects of Distortionary Subsidies," Journal of the Association of Environmental and Resource Economists, vol 3(2), pages 361-415.
|May 2009||Subsidies to Industry and the Environment|
Governments support particular firms or sectors by granting low interest financing, reduced regulation, tax relief, price supports, monopoly rights, and a variety of other subsidies. Previous work in partial equilibrium shows that subsidies to environmentally sensitive industries increases output and pollution emissions. We examine the environmental effects of subsidies in general equilibrium. Since all resources are used, whether or not subsidies increase emissions depends on the relative emissions intensity and incentives to emit of the subsidized industry versus the emissions intensity and the incentives to emit of the industry which would otherwise use the resources. Since subsidies must move resources to a less productive use, the economy wide marginal product of emissions falls with ...