An Econometric Evaluation of Sulfur Taxes
This chapter demonstrates how the overly restrictive assumptions of comparative static analysis can be remedied by an econometric model. As well as providing a dynamic framework, an econometric modeling approach provides a method of estimating control costs. The chapter presents a simplified description of the basic structural relationship present in the econometric model as well as the assumptions and estimation techniques underlying it. It estimates the probable welfare and distributional effects of the recently proposed sulfur tax for alternative technological assumptions and tax rates. The chapter then considers the dynamic properties of the Baumol and Oates approach as taxes are adjusted annually to meet some specific sulfur emission constraint. Sulfur tax analysis is achieved by adjusting the various fossil fuel prices for a given tax rate and exogenous set of technological control cost assumptions. The chapter considers the welfare and distributional effects of the Pure Air Tax Act of 1972 as they relate to electric utility generation.