Environmental Amenities and General Equilibrium Deadweight Loss

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Abstract
This paper develops an analytical extension and numerical assessment of the importance of market and non-market distortions for the measurement of the deadweight losses associated with new tax or regulations. We build on the Goulder & Williams (2003) evaluation of tax interactions for Harbergerian measures of excess burden. Our primary focus is on the demand for environmental amenities. We find that treating air quality as a non-separable argument in the description of aggregate demands for the US economy changes estimates of excess burden as much as 30% in simulations where the benchmark value of the amenity represents less than 1% of GDP.