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“General Equilibrium Analysis of Environmental Tax Policy”
Three lectures/workshops (7, 8, 14 of May 2013).
Prof. Fullerton will provide a mini-course for economics graduate students about how to build and use
analytical general equilibrium models. The “log-linearization” method provides a remarkably easy and
useful way to analyze topics in applied areas such as public, environmental, development, and trade
economics. For a small policy change such as an increase in a particular tax rate or environmental
restriction, this approach allows the researcher to solve analytically for the resulting changes in each
price and quantity, as well as changes in economic welfare. Changes in factor prices and output prices
indicate “incidence” of the policy, but changes in quantities are useful for study of pollution and other
outcomes. Students will undertake an assignment before each of the three classes:
1.
2.
3.
4.
Before the first class, read Harberger (1962) and the 14 pages in “Tax Incidence”.
Come to a 90 minute lecture describing the method (subtitle: “Methods of Model Building”).
Read Bovenberg and de Mooij (1994). Also, read and replicate “Negative Leakage”.
Come to a second class to discuss those readings and alternative applications in other areas. We
can point to other papers you could find in public economics, trade, development, or
environmental economics (subtitle: “Applications of the Method”).
5. Think about a possible research project or proposal with your own idea.
6. Come to a final class to discuss those proposals (subtitle: “Discussion of Research Ideas”).
READING LIST
Bovenberg, A.L., and R. A. de Mooij (1994), “Environmental Levies and Distortionary Taxation,” American
Economic Review 84 (4), 1085–1089.
Fullerton, D., D.H. Karney, and K. Baylis (2011), “Negative Leakage,” CESifo Working Paper No. 3379
(2011). Read all (11 pages).
Fullerton, D. and G. Metcalf (2002), “Tax Incidence”, in A. Auerbach and M. Feldstein, eds., Handbook of
Public Economics, Vol. 4, Amsterdam: Elsevier. Primarily just pages 1789-1802 (14 pages).
Harberger, A. C. (1962), “The Incidence of the Corporation Income Tax,” Journal of Political Economy
70(3): 215-40 (skim or read to the extent of your interest).