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Environmental Regulation and Labor Market Reallocation: A General Equilibrium Analysis - Kunio Tsuyuhara

Date & Time:
October 21, 2015 | 3:00 pm - 4:30 pm
SS 423
Kunio Tsuyuhara

ABSTRACT:  This paper studies the impact of an environmental regulation on worker allocation and investigates its macroeconomic consequences. I analyze the issue within a quantitative island-economy model with heterogeneous industries in terms of energy-input factor intensity and industry-specific human capital accumulation. An environmental regulation for the policy experiment takes the form of a tax on energy input.  The calibrated model shows that the tax induces labor reallocation not only from energy intensive (dirtier) industries to less energy intensive (cleaner) industries, but also toward higher productivity workers in cleaner industries. The overall effects on employment is nonetheless very small in both the modest energy tax (10%) and high energy tax (30%) cases. The energy taxes significantly reduce aggregate energy use in both cases. These results suggest that an energy tax is an effective form of environmental  regulation without significant adverse effects on the overall employment in the economy.

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