Environmental Tax Interactions when Pollution Affects Health or Productivity

摘要

Recent studies indicate that interactions with the tax-distorted labor market increase the cost of pollution regulation. However, these studies make restrictive assumptions regarding prefer- ences and ignore key links between pollution, human health, and labor productivity. Together, these assumptions imply that pollution does not affect labor supply. This paper develops an analytical general-equilibrium model that considers several potential benefits from reduced pollution, including improved health or productivity. It shows that these benefits affect labor supply and thus create a benefit-side tax-interaction effect that can be of the same magnitude as the familiar cost-side interaction.