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Does Commuting Change the Ranking of Environmental Instruments?

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Document pages: 26 pages

Abstract: This paper studies the income effects of environmental policy in jurisdictions with a common labor market and a heterogeneous population (workers and polluters). A jurisdiction unilaterally improves its local environmental quality, using a subsidy, an environmental tax or command-and-control. In a closed economy, workers and polluters have some kind of a "natural ranking " of instruments for a given environmental objective. We find that commuting across jurisdictions may upset this "natural ranking " of environmental instruments. Further, we see that this inter-jurisdictional commuting exports pollution and the costs of environmental policy, possibly causing strategic behavior.

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