Optimal Fiscal Policy in a Climate-Economy Model with Heterogeneous Households
We study optimal fiscal policy to address climate change and inequality. We theoretically characterize optimal carbon and income taxes, and quantify them for the U.S. economy with the climate model calibrated to DICE. In contrast to the representative-agent setting, we find that (i) the optimal carbon tax is on average equal to the Pigouvian level, and hardly ever deviates from it; (ii) inequality reduces the Pigouvian level, by 4% in our baseline calibration; (iii) the revenue from carbon taxes is optimally split halfway between reducing tax distortions and increasing transfers. Introducing optimal carbon taxation has progressive welfare effects and low-income households benefit even in the short run.
Date: 8 May 2023, 16:00 (Monday, 3rd week, Trinity 2023)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Lecture Theatre or https://zoom.us/j/92415955348?pwd=ME5ybjVBVk90aThHdkcwVnZiUWF4Zz09
Speaker: Thomas Douenne (University of Amsterdam)
Organising department: Department of Economics
Part of: Environment and Resource Economics Seminar
Booking required?: Not required
Audience: Members of the University only
Editors: Emma Heritage, Daria Ihnatenko