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Comparing applied general equilibrium and econometric estimates of the effect of an environmental policy shock

Author

Listed:
  • Jared C. Carbone

    (Division of Economics and Business, Colorado School of Mines)

  • Nicholas Rivers

    (Graduate School of Public and International Affairs and Institute of the Environment, University of Ottawa)

  • Akio Yamazaki

    (Department of Economics, University of Calgary)

  • Hidemichi Yonezawa

    (ETH Zurich)

Abstract
We treat the implementation of the carbon tax in British Columbia as a natural experiment and compare the results of econometric estimates of its effects to counterfactual experiments conducted using an applied general equilibrium (CGE) model of the Canadian economy. The comparison allows us to test the theory-driven predictions of the CGE model. It also allows us to test the identifcation strategy of our econometric model, using the CGE model to indicate under what circumstances general equilibrium policy responses might undermine our attempts at statistical inference. Ex post, we find statistically and economically signifcant effects on sectoral employment levels from the carbon tax --- with levels falling in the most carbon-intensive sectors and rising in the least carbon-intensive. Ex ante, we predict employment responses of very similar sign and magnitude to our econometric measurements (Pearson correlation coefficient of approximately 0.9). We find no evidence to suggest that our difference-in-difference estimator is likely to be undermined by general equilibrium effects in this policy setting. Finally, we explore the use of the econometric estimates to deepen the empirical content of the CGE model.

Suggested Citation

  • Jared C. Carbone & Nicholas Rivers & Akio Yamazaki & Hidemichi Yonezawa, 2018. "Comparing applied general equilibrium and econometric estimates of the effect of an environmental policy shock," Working Papers 2018-02, Colorado School of Mines, Division of Economics and Business.
    • Handle: RePEc:mns:wpaper:wp201802
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    File URL: http://econbus-papers.mines.edu/working-papers/wp201802.pdf
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    References listed on IDEAS

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    Cited by:

    1. Ryan Rafaty & Geoffroy Dolphin & Felix Pretis, 2020. "Carbon pricing and the elasticity of CO2 emissions," Working Papers EPRG2035, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Kumbhakar, Subal C. & Badunenko, Oleg & Willox, Michael, 2022. "Do carbon taxes affect economic and environmental efficiency? The case of British Columbia’s manufacturing plants," Energy Economics, Elsevier, vol. 115(C).
    3. Turner, Karen & Alabi, Oluwafisayo & Katris, Antonios & Swales, Kim, 2022. "The importance of labour market responses, competitiveness impacts, and revenue recycling in determining the political economy costs of broad carbon taxation in the UK," Energy Economics, Elsevier, vol. 116(C).
    4. Ferguson, Shon & Heijmans, Roweno J.R.K., 2023. "Climate Policy and Trade in Polluting Technologies," Working Paper Series 1470, Research Institute of Industrial Economics.
    5. Jared C. Carbone & Linda T.M. Bui & Don Fullerton & Sergey Paltsev & Ian Sue Wing, 2022. "When and How to Use Economy-Wide Models for Environmental Policy Analysis," Annual Review of Resource Economics, Annual Reviews, vol. 14(1), pages 447-465, October.
    6. Deven Azevedo & Hendrik Wolff & Akio Yamazaki, 2023. "Do Carbon Taxes Kill Jobs? Firm-Level Evidence From British Columbia," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 14(02), pages 1-46, May.
    7. Osanya, Jessica & Reimer, Jeff J., 2024. "Economywide Impacts of the Supplemental Nutrition Assistance Program," 2024 Annual Meeting, July 28-30, New Orleans, LA 343900, Agricultural and Applied Economics Association.
    8. Matterne, Ilias & Roggeman, Annelies & Verleyen, Isabelle, 2024. "The impact of environmental taxation on innovation: Evidence from Canada," Energy Policy, Elsevier, vol. 187(C).
    9. Werner Hölzl & Serguei Kaniovski & Bettina Meinhart & Franz Sinabell & Gerhard Streicher, 2023. "Wettbewerbsfähigkeit der österreichischen Industrie bei weiterhin hohen Energiepreisen," WIFO Studies, WIFO, number 70789, April.
    10. Cao, June & Li, Wenwen & Hasan, Iftekhar, 2023. "The impact of lowering carbon emissions on corporate labour investment: A quasi-natural experiment," Energy Economics, Elsevier, vol. 121(C).

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    More about this item

    Keywords

    climate policy; carbon tax; computable general equilibrium;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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