Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices
Using an analytical general equilibrium model, we find closed form solutions for the effect of energy policy on factor prices and output prices. We calibrate the model to the US economy, and we consider a tax on carbon. By looking at expenditure and income patterns across household groups, we quantify the uses-side and sources-side incidence of the tax. When households are categorized either by annual income or by total annual consumption as a proxy for permanent income, the uses-side incidence is regressive. This result is robust to sensitivity analysis over various parameter values. The sources-side incidence is also regressive, but this result is sensitive to parameter values. Incidence results across regions are also presented.
This paper is prepared for a conference on January 20-21, 2010, organized by the University of Chicago, Resources for the Future, and the University of Illinois. We thank Sam Kortum and Gilbert Metcalf for comments and Matt Trombley for valuable research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Don Fullerton & Garth Heutel, 2011. "Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 10(2), pages 15. citation courtesy of