Environmental Policy in General Equilibrium: New Insights from a Canonical Model

This paper derives the incidence of a pollution tax in stylized general equilibrium framework, building on previous work by Fullerton and Heutel. Using CPI as numeraire, we show that is simpler problem than previously thought insights can be derived without need to restrict parameter space. In addition, counterintuitive possibility an increase could level vanishes. The choice numeraire further justified fact environmental taxes, notably carbon are typically indexed inflation.