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Environmental Protection and Urban Unemployment: Environmental Policy Reform in a Polluted Dualistic Economy
TL;DR: In this article, sufficient conditions for the welfare-improving environmental policy reform in the Harris-Todaro economy were explored, and it was shown that there exists a range of welfare improving pollution tax rates, and that it corresponds to lower values of tax rate.
Abstract: This paper explores sufficient conditions for the welfare-improving environmental policy reform in the Harris-Todaro economy. A rise in the pollution tax rate in the urban manufacturing has on the two labor market distortions: The manufacturing employment and the urban unemployment. If both are weakened the welfare improves. Otherwise, we need to develop an alternative sufficient condition. It is shown that there exists a range of welfare-improving pollution tax rates, and that it corresponds to the lower values of tax rate. This range may by the wage subsidy policy and the technological change toward pollution-intensive techniques.
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TL;DR: In this article, a comparative static analysis in the Harris-Todaro (H-T) model by accommodating local pollution is conducted, showing that an improvement in pollution-abatement technology gives rise to an increase in urban unemployment and has no effect on the workers' aggregate welfare.
Abstract: This paper undertakes a comparative static analysis in the Harris-Todaro (H-T) model by accommodating local pollution. Unlike in the classical H-T model where migration proceeds in response to urban-rural differences in expected earnings, we consider labor movement taking place according to the difference in utility, which is influenced by the quality of the local environment. The paradoxical result is that an improvement in pollution-abatement technology gives rise to an increase in urban unemployment and has no effect on the workers' aggregate welfare.
32 citations
Cites background from "Environmental Protection and Urban ..."
...But they did not consider the case where workers move between regions by a difference in utility realized in an area (Dean and Gangopadhyay, 1997; Daitoh, 2003, 2008)....
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TL;DR: In this paper, conditions under which environmental protection and trade liberalization might improve urban unemployment and welfare in a small open Harris-Todaro model with polluting urban manufacturing were investigated.
Abstract: The author investigates the conditions under which environmental protection and trade liberalization might improve urban unemployment and welfare in a small open Harris–Todaro model with polluting urban manufacturing. While a tariff reduction decreases manufacturing employment, a rise in the pollution tax rate may increase it when a dirty input is complementary to capital. Environmental protection and trade liberalization are consistent in reducing the level of urban unemployment because they lower it under the same condition. They are consistent in increasing GDP if a rise in the pollution tax rate decreases manufacturing employment. Otherwise, trade liberalization will mitigate a decrease in GDP because of environmental protection if the degree of urbanization is low and if rural technology exhibits weak diminishing returns to labor. This GDP effect plays a central role in welfare improvement.
21 citations
Cites methods from "Environmental Protection and Urban ..."
...An urban pollution tax in the standard model of a closed HT economy was analyzed by Daitoh (2003)....
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TL;DR: In this article, the authors investigated the effects of pollution taxation for a dual developing economy with a separate abatement sector and found that the optimal tax on pollution is lower than the marginal environmental damage to the economy.
Abstract: This paper investigates the effects of pollution taxation for a dual developing economy with a separate abatement sector. Due to the real rigidity of the urban wage, pollution taxes raise the cost of the urban good and hence its relative price. This suggests that because of flexible rural wages, the developing economy tends to have a comparative advantage in the rural good which may be less polluting. Moreover, the higher price of the urban good worsens the urban unemployment ratio. The optimal tax on pollution is thus lower than the marginal environmental damage to the economy.
20 citations
Cites background from "Environmental Protection and Urban ..."
...See Daitoh (2003). the abatement activity is assumed to be undertaken by a separate sector.7 If marginal costs of polluting (τ ) are greater than marginal costs of abating (pA), there will be more demand for abatement and hence its price will be pushed up....
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...4 Related studies on the Harris–Todaro model can be found in Khan (1980a), Neary (1981), Batra and Lahiri (1987, 1988), Gupta (1988), Yabuuchi (1993, 1996), Beladi and Marjit (1996), and Hatzipanayotou and Michael (2001)....
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...In addition, studies on the environmental policy in the Harris–Todaro model can be found in Dean and Gangopadhyay (1997), Chao et al. (2000), and Daitoh (2003)....
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TL;DR: In this paper, the authors investigated how a rise in the urban pollution tax rate may affect urban unemployment and welfare in a small open Harris-Todaro (HT) model with intersectoral capital mobility.
Abstract: This paper investigates how a rise in the urban pollution tax rate may affect urban unemployment and welfare in a small open Harris–Todaro (HT) model with intersectoral capital mobility. First, by formulating urban pollution as a dirty input in manufacturing, we find that an increase in the urban pollution tax rate can increase the level of urban unemployment even with intersectoral capital mobility. That is, the optimistic finding by Rapanos (2007) that environmental protection policy reduces urban unemployment in the long run does not always hold. Second, the (sub)optimal pollution tax rate under urban unemployment is higher than the Pigouvian tax rate (the marginal damage of pollution). This result opposes those of Beladi and Chao (2006) for a closed HT economy and that of Tsakiris et al. (2008) for an open HT economy with sector-specific capital.
19 citations
TL;DR: In this paper, the authors highlight the links among unemployment, international capital mobility, and tax policies in a small open developing economy, and highlight aspects related to the links between unemployment and tax.
Abstract: In this paper we highlight aspects related to the links among unemployment, international capital mobility, and tax policies in a small open developing economy. Without international capital mobility, the joint optimal trade and environmental policies require a zero tariff and an emission tax lower than the Pigouvian tax. With international capital mobility and a capital tax (subsidy), the optimal emission tax rate is smaller (larger) compared to the rate when capital is untaxed. When both the emission tax and the capital tax/subsidy are jointly chosen optimally, then the optimal policy on capital is a lower subsidy, or even a tax, compared to the standard capital subsidy of the no pollution case.
17 citations
References
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TL;DR: In this article, the authors present a different framework for solving problems of distribution accumulation and growth first in a closed and then in an open economy, where the assumption of an unlimited labor supply is used.
Abstract: Written in the classical tradition this essay attempts to determine what can be made of the classical framework in solving problems of distribution accumulation and growth first in a closed and then in an open economy. The purpose is to bring the framework of individual writers up to date in the light of modern knowledge and to see if it helps facilitate an understanding of the contemporary problems of large areas of the earth. The 1st task is to elaborate the assumption of an unlimited labor supply and by establishing that it is a useful assumption. The objective is merely to elaborate a different framework for those countries which the neoclassical (and Keynesian) assumptions do not fit. In the 1st place an unlimited supply of labor may be said to exist in those countries where population is so large relative to capital and natural resources that there are large sectors of the economy where the marginal productivity of labor is negligible zero or even negative. Several writers have drawn attention to the existence of such "disguised" unemployment in the agricultural sector. If unlimited labor is available while capital is scarce it is known from the Law of Variable Proportions that the capital should not be spread thinly over all the labor. Only so much labor should be used with capital as will reduce the marginal productivity of labor to zero. The key to the process of economic expansion is the use that is made of the capitalist surplus. In so far as this is reinvested in creating new capital the capital sector expands taking more people into capitalist employment out of the subsistence sector. The surplus is then larger still and capital formation is still greater and so the process continues until the labor surplus disappears. The central problem in the theory of economic development is to understand the process by which a community which was previously saving and investing 4 or 5% of its national income or less converts itself into an economy where voluntary saving is running at about 12-15% of national income or more. This is the crucial problem because the central fact of economic development is rapid capital accumulation (including knowledge and skills with capital). Much of the plausible explanation is that people save more because they have more to save. The model used here states that if unlimited supplies of labor are available at a constant real wage and if any part of profits is reinvested in productive capacity profits will grow continuously relative to the national income and capital formation will also grow relatively to the national income. As capitalists also create capital as a result of a net increase in the supply of money particularly bank credit it is necessary to take account of this. Governments affect the process of capital accumulation in many ways and not least by the inflations which they experience. The expansion of the capitalist sector may be stopped because the price of subsistence goods rises or because the price is not falling as fast as subsistence productivity per head is rising or because capitalist workers raise their subsistence standards.
9,030 citations
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TL;DR: In this paper, the authors examined why rural-urban labor migration persists and is even increasing in many developing nations despite the existence of positive marginal products in agriculture and significant levels of urban unemployment, and concluded that in the absence of wage flexibility an optimal policy would include both partial wage subsidies or direct government employment and measures to restrict free migration.
Abstract: This study examines why rural-urban labor migration persists and is even increasing in many developing nations despite the existence of positive marginal products in agriculture and significant levels of urban unemployment. Conventional economic models have difficulty reconciling rational behavioral explanations with growing levels of urban unemployment in the absence of absolute labor redundancy in the overall economy. This paper formulates a 2-sector model of rural-urban migration which recognizes the existence of a politically determined minimum urban wage at levels substantially higher than agricultural earnings. The distinguishing feature of the model is that migration proceeds in response to urban-rural differences in expected earnings with the urban employment rate acting as an equilibrating force on such migration. The overall model is used to demonstrate 1) that given the politically determined high minimum wage the continued existence of rural-urban migration in spite of substantial urban unemployment represents an economically rational choice on the part of the individual migrants and 2) that economists standard policy recommendation of generating urban employment opportunities through the use of "shadow prices" implemented by means of wage subsidies or direct government hiring may lead to a worsening of the urban unemployment problem. Welfare implications of alternative policies associated with various programs to retain rural population are assessed under the assumption that the full wage flexibility suggested by economic theory is politically unfeasible; it is concluded that in the absence of wage flexibility an optimal policy would include both partial wage subsidies or direct government employment and measures to restrict free migration. The basic model is a 2-sector internal trade model with unemployment the 2 sectors being the permanent urban sector which specializes in production of manufactured goods and the rural which either uses all available labor to produce agricultural goods or exports part of the labor to the urban sector. It is assumed that the typical migrant retains his ties to the rural sector but the assumption is not necessary for the argument.
5,592 citations
Additional excerpts
...The standard framework to capture the economic structure of a LDC with urban unemployment was provided by Harris and Todaro (1970)....
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TL;DR: In this paper, a simple static model of North-South trade is developed to examine linkages between national income, pollution, and international trade, and it is shown that the higher income country chooses stronger environmental protection, and specializes in relatively clean goods.
Abstract: A simple static model of North-South trade is developed to examine linkages between national income, pollution, and international trade. Two countries produce a continuum of goods, each differing in pollution intensity. We show that the higher income country chooses stronger environmental protection, and specializes in relatively clean goods. By isolating the scale, composition, and technique effects of international trade on pollution, we show that free trade increases world pollution; an increase in the rich North's production possibilities increases pollution, while similar growth in the poor South lowers pollution; and unilateral transfers from North to South reduce worldwide pollution.
1,465 citations
TL;DR: In this paper, a simple two-sector general equilibrium model is used to show how some well-known propositions of the neoclassical trade theory can be applied to countries with pollution-generating industries.
Abstract: Within a simple two-sector general equilibrium model it is shown how some well-known propositions of the neoclassical trade theory can be applied to countries with pollution-generating industries. Results are obtained not only under the assumption that the countries do not enforce any environmental policy but also for the case that one or each country implements an environmental price and standard system. In particular, several versions of the Theorem of Comparative Advantage with respect to environmental scarcity are derived, a theorem on welfare losses from trade, and an emission charge equalization theorem.
382 citations
TL;DR: In this paper, the authors investigate and compare reform in tax regimes, quota regimes, and mixed regimes, where some pollutants are regulated with taxes and others with quotas, and show that the welfare benefits of reforming pollution policy are greater in an economy with international factor mobility.
Abstract: This paper investigates sufficient conditions for welfare-improving policy reforms in a small open economy facing many trade and pollution distortions. We investigate and compare reform in tax regimes, quota regimes, and mixed regimes, where some pollutants are regulated with taxes and others with quotas. It is also shown that the welfare benefits of reforming pollution policy are greater in an economy with international factor mobility than in an economy not subject to such mobility.
247 citations
"Environmental Protection and Urban ..." refers background in this paper
...Recalling Copeland (1994), the welfare unambiguously improves if both labor market distortions are weakened by the spillover effects of the rise in the pollution tax....
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...Copeland (1994) considered small changes in trade and environmental policies in an economy with many trade barriers and many pollutants, and established the sufficient conditions for welfare improvement....
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...In this case the principle in Copeland (1994) does not tell us more about how we can find the sufficient condition for the overall distortions to be weakened, because we cannot adjust the direction of pollution tax reform in our one-pollution model....
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...Recalling Copeland (1994), the welfare unambiguously improves in this case because both labor market distortions are weakened....
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