Group for Research in Decision Analysis

Why the rich may want a low pollution tax?

Baris Vardar HEC Montréal, Canada

This work investigates the distributional impacts of a pollution tax by considering a society in which wealth is distributed heterogeneously among households. We consider that firms produce with dirty and/or clean technologies, and show novel results on the effect of a pollution tax on factor prices. In a general equilibrium framework, an increase in pollution tax makes the richer households lose a higher proportion of their income compared to the low-income ones. Consequently, the loss in their well-being due to the fall of income outweighs the benefits of a better environment, and their support for a pollution tax declines.

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