Conference Agenda

This paper explores the economic consequences of deforestation policies on households, with a focus on distributional outcomes. In the context of the Priority Municipalities policy in Brazil, it asks whether increased regulation and enforcement, and the resulting reduction in deforestation, impacted employment and income of households situated in affected areas. The identification strategy exploits the assignment mechanism for priority status to run a fuzzy regression discontinuity analysis on municipalities in the Brazilian arc of deforestation close to the de facto thresholds for inclusion. It then uses a changes-in-changes analysis to examine effects at different parts of the distribution. In line with previous work on this topic, which considers effects at the municipality level, the study finds no evidence of economic impacts on average for these marginal municipalities. However, the changes-in-changes analysis suggests heterogeneous impacts at different parts of the income distribution, especially for those employed in agriculture. In particular, it appears that the lack of impact on average obscures regressive effects for this sector, perhaps due to a substitution from labor-intensive to more capital-intensive agricultural production.