Working Paper: NBER ID: w11438
Authors: Ian W.H. Parry; Hilary Sigman; Margaret Walls; Roberton C. Williams III
Abstract: This paper reviews theoretical and empirical literature on the household distribution of the costs and benefits of pollution control policies, and ways of integrating distributional issues into environmental cost/benefit analysis. Most studies find that policy costs fall disproportionately on poorer groups, though this is less pronounced when lifetime income is used, and policies affect prices of inputs used pervasively across the economy. The policy instrument itself is also critical; freely allocated emission permits may hurt the poor the most, as they transfer income to shareholders via scarcity rents created by higher prices, while emissions taxes offer opportunities for progressive revenue recycling. And although low-income households appear to bear a disproportionate share of environmental risks, policies that reduce risks are not always progressive, for example, they may alter property values in ways that benefit the wealthy. The review concludes by noting a number of areas where future research is badly needed.
Keywords: pollution control; environmental policy; distributional effects; cost-benefit analysis
JEL Codes: Q52; H23; H22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| policy costs disproportionately fall on poorer households (H22) | lower-income households bear a disproportionate share of environmental risks (H23) |
| freely allocated emission permits (Q58) | scarcity rents benefit wealthier shareholders (D33) |
| scarcity rents benefit wealthier shareholders (D33) | low-income households harmed (H53) |
| emissions taxes (H23) | burden of environmental taxes is regressive (H23) |
| lower-income households spend larger fraction of income on energy and polluting goods (D19) | burden of environmental taxes is regressive (H23) |
| method of income measurement (E01) | causal interpretation of policy impacts (D78) |
| policies aimed at reducing environmental risks (Q58) | progressive benefits (H55) |
| property value changes (D46) | favor wealthier households (G59) |