Welfare Impacts of Alternative Public Policies for Agricultural Pollution Control in an Open Economy: A General Equilibrium Framework

A general equilibrium approach is used to evaluate the welfare impacts of alternative policies for reducing agricultural pollution in an open economy with preexisting distortions caused by income taxes and agricultural subsidies. The policies examined here include the removal of distortionary agricultural subsidies. We find that even though these distortions are small compared to others in the economy, removing them and imposing nitrogen reduction subsidies and/or output taxes can enhance welfare and reduce nitrogen pollution; thereby leading to a substantial double dividend. The relative efficiency of the alternative policies examined here depends on the level of the nitrogen reduction target.