Yazid Dissou

Household Incidence of Pollution Control Policies: A Robust Welfare Analysis Using General Equilibrium Effects

This study assesses the incidence of pollution control policies on households. In contrast to previous studies, we employ an integrated framework combining a multisector general equilibrium model with a stochastic dominance analysis using household-leved data. We consider three policy instruments in a domestic emission trading system: (i) an output-based allocation of permits (OBA); (ii) the use of the proceeds of permit sales to reduce payroll taxes (RPT); (iii) and the use of these proceeds to reduce consumption taxes instead (UCS). The general equilibrium results suggest that the return to capital is more negatively affected than the wage rate in all simulations, since polluting industries are capital intensive. Abstracting from pollution externalities, the dominance analysis allows us to conclude that all three policies have a normatively robust negative (positive) impact on welfare (poverty). Formal dominance tests indicate that RPT first-order welfare dominates OBA over all values of household incomes. UCS also first-order poverty dominates RPT for any choice of poverty line below

Compliance costs to the Kyoto Protocol and market structure in Canada: a dynamic general equilibrium analysis

CAN 18,600, and poverty dominates for any poverty line (and thus welfare dominates) at the second order. Finally, while the three pollution control policies do not have a numerically large impact on inequality (in comparison to the base run), statistical tests indicate that inequality increases significantly more with OBA and RPT than with UCS.

US Foreign Affiliates, Technology Diffusion and Host Country Human Development: Human Development Index versus Human Capital

Abstract The US withdrawal from the Kyoto Protocol has exacerbated the policy debate that has been centered on the compliance cost in Canada. In contrast to previous studies, this paper uses a dynamic general equilibrium model with monopolistic competition to explore the consequences, in terms of compliance costs, of departing from perfect competition. While the simulation results show that a perfectly competitive framework can underestimate the welfare cost of compliance by as much as 30%, they also indicate that the market structure does not have a noticeable impact on the estimation of the annual Gross Domestic Product (GDP) costs.

Efficiency and Sectoral Distributional Impacts of Output-Based Emissions Allowances in Canada

In this study, we use a cross-sectionally correlated and timewise autoregressive model and panel data for the period 1966–2000 to investigate human development as a measure of host country absorptive capacity in 30 developed and developing countries. The results suggest that technology diffusion from US foreign affiliates has a positive and significant impact on labor productivity only if host countries have a minimum level of human development. This condition may partially explain why previous studies show mixed support for the hypothesis that foreign affiliates have a positive effect on productivity in developing countries. Although the results have to be interpreted with caution, the policy implication is that human development enhances the capacity of countries to reap the benefits of foreign direct investments.

Energy Substitutability in Canadian Manufacturing Econometric Estimation with Bootstrap Confidence Intervals

Abstract Emissions trading with output-based allocation (OBA) of emissions allowances is gaining popularity as a mean to address sectoral distribution issues related to the use of market-based instruments in pollution control. Using a dynamic general equilibrium framework, this paper assesses the potential trade-off between efficiency and uneven sectoral distributional effects. It compares OBA and other alternative emissions trading systems, with special attention to the heterogeneity among energy-intensive industries. Because abatement is achieved at a higher marginal cost with OBA, it is less efficient than emissions trading systems in which permit revenues are used to reduce payroll taxes. Nonetheless, the implicit output subsidy in OBA improves the sectoral distributional outcome of the abatement policy to the benefit of energy-intensive industries as a whole. The simulation results also suggest that energy-intensive industries that do not produce energy are the main beneficiaries of OBA. In the new carbon-constrained environment, energy intensive industries that produce energy could not benefit from OBA.

Infrastructure and Growth

This study provides estimates of the price and Morishima substitution elasticities between energy and non-energy inputs in two Canadian energy-intensive manufacturing industries: Primary Metal and Cement. The elasticities are estimated using annual industry-level KLEM data (1961- 2003) and relying on two flexible functional forms: the Translog and the Symmetric Generalized McFadden (SGM) cost functions. In addition to the point estimates, the confidence intervals of the elasticities are computed using single- and double-bootstrap resampling techniques. For both industries, the estimation results suggest that capital, labour, material and energy are pairwise substitutes and that energy is the most substitutable input. However, the low magnitudes of the estimated elasticities do not seem to offer great flexibility to these industries to adapt to high increases in energy prices.

Pollution Control, Competitiveness, and Border Tax Adjustment

While a high rate of economic growth does not necessarily reduce inequality or poverty, there seems to be a consensus among researchers and policy makers that continuous, rapid economic growth is required for poverty alleviation. Governments around the world are continually looking for new strategies to increase the ability of their economies to produce goods and services. In this light, over the last two decades, economists have developed more sophisticated models to evaluate the potential economic impacts of different supply-side policies that aim to raise the productive capacity of the economy. Specifically, alongside modelling the main factors of production – physical capital and labour – these models seek to account for the concurrent use of non-traditional inputs, such as public infrastructure and education, as key contributing factors to economic growth.

Health Insurance, Liquidity and Growth

This paper explores in a general equilibrium framework the welfare and sectoral implications of an optimally designed system of border tax adjustments (BTA) on the imports of energy-intensive industries. Recently, several propositions have been made by policy makers and researchers to use BTA as a restrictive trade policy instrument to address the loss of competitiveness induced by unilateral stringent domestic pollution control policies. In this paper, we define the loss of competitiveness not as a loss of output by domestic energy-intensive producers, but instead as a loss of their market shares. We argue and we show using the Canadian economy as illustration that the most often proposed BTA, which is based on the carbon embodiment of the import good, may under- or over-achieve the objective of addressing the competitive disadvantage of domestic energy-intensive industries. In some cases, the proposed BTA may over protect the domestic energy-intensive industries by providing implicit subsidies as they might even increase their production in the presence of carbon taxes. Similarly, the proposed BTA may fail to fully restore the competitiveness of domestic producers, vis-a-vis their foreign peers. We determine the optimal BTAs on imports that fully restore the competitiveness of domestic firms following unilateral stringent pollution control policies. The ‘optimal’ BTAs take into consideration the general equilibrium effects of the carbon tax and of the import charges on the prices of domestic goods. In most cases, the impact their impact on import prices is higher than in the previous case. As a consequence, they entail higher distortions on resource allocation in the economy and hence higher welfare cost to households.

Output-Based Emissions Allowances and the Equity-Efficiency Trade-Off

Within the context of an endogenous growth model, it is shown that in the presence of health risks which influence household income, the introduction of a private insurance company increases the long-term economic growth rate. The introduction of such an institution has two effects on savings: a level effect and a composition effect. Although the presence of this risk-reducing institution induces a decrease in the level of total savings, as suggested in earlier papers, the rate of illiquid savings, which contribute to growth, increases. Copyright 2000 by The editors of the Scandinavian Journal of Economics.

Can carbon taxes be progressive

Emissions trading with output-based allocation (OBA) of emissions allowances is gaining popularity as a means to address sectoral equity issues related to the use of market-based instruments in pollution control. Using a dynamic general equilibrium framework, this paper assesses the potential equity-efficiency trade-off between OBA and alternative emissions trading systems, with special attention to the heterogeneity among energy-intensive industries. Because abatement is achieved at a higher marginal cost with OBA, it is less efficient than emissions trading systems in which permit revenues are used to reduce payroll taxes. Nonetheless, the implicit output subsidy in OBA improves the distributional outcome of the abatement policy to the benefit of energy-intensive industries as a whole. The simulation results also suggest that energy-intensive industries that do not produce energy would be the main beneficiaries of OBA. In the new carbonconstrained environment, energy intensive industries that produce energy could not benefit significantly from OBA.