This paper shows how to combine microeconometric evidence on the effects of environmental policy with a macroeconomic model, accounting for general equilibrium spillovers that have mostly been ignored in the literature. To this end, we study the effects of a recent US air pollution policy. We use regression evidence on the policy’s impact across industries and local labor markets to calibrate a quantitative spatial model allowing for general equilibrium spillovers. Our model implies that the policy lowered emissions by 11.1%, but destroyed approximately 250’000 jobs. Ignoring spillovers overestimates job losses in polluting industries, but underestimates job losses in clean industries.

Suggested Citation: T. Schmitz, I. Colantone, G. Ottaviano, ‘Regional and Aggregate Economic Consequences of Environmental Policy’, Nota di Lavoro 10.2024, Milano, Italia: Fondazione Eni Enrico Mattei.