IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v119y2023ics0264999322003467.html
   My bibliography  Save this article

Optimal carbon tax rates in a dynamic stochastic general equilibrium model with a supply chain

Author

Listed:
  • Chan, Ying Tung
  • Zhao, Hong

Abstract

This study investigates the role of the production supply chain in the choice of climate policies. We construct an environmental dynamic stochastic general equilibrium (E-DSGE) model that features multiple stages of production and different types of productivity shocks. Existing E-DSGE models for climate policy evaluation assume a single production stage. We find that the optimal carbon tax rates in all production stages are procyclical to aggregate supply shocks and countercyclical to aggregate demand shocks; however, if the shock arises from a particular production stage, the implied optimal carbon tax rates vary across stages and depend on the nature of the shocks.

Suggested Citation

  • Chan, Ying Tung & Zhao, Hong, 2023. "Optimal carbon tax rates in a dynamic stochastic general equilibrium model with a supply chain," Economic Modelling, Elsevier, vol. 119(C).
    • Handle: RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003467
    DOI: 10.1016/j.econmod.2022.106109
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999322003467
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2022.106109?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chan, Ying Tung, 2020. "Optimal emissions tax rates under habit formation and social comparisons," Energy Policy, Elsevier, vol. 146(C).
    2. Qu, Qiushi & Wang, Limao & Cao, Zhi & Zhong, Shuai & Mou, Chufu & Sun, Yanzhi & Xiong, Chenran, 2019. "Unfolding the price effects of non-ferrous industry chain on economic development: A case study of Yunnan province," Resources Policy, Elsevier, vol. 61(C), pages 1-20.
    3. Hua, Guowei & Cheng, T.C.E. & Wang, Shouyang, 2011. "Managing carbon footprints in inventory management," International Journal of Production Economics, Elsevier, vol. 132(2), pages 178-185, August.
    4. Stern, David I., 2004. "The Rise and Fall of the Environmental Kuznets Curve," World Development, Elsevier, vol. 32(8), pages 1419-1439, August.
    5. Susanto Basu & Brent Bundick, 2017. "Uncertainty Shocks in a Model of Effective Demand," Econometrica, Econometric Society, vol. 85, pages 937-958, May.
    6. Annicchiarico, Barbara & Diluiso, Francesca, 2019. "International transmission of the business cycle and environmental policy," Resource and Energy Economics, Elsevier, vol. 58(C).
    7. Khan, Hashmat & Metaxoglou, Konstantinos & Knittel, Christopher R. & Papineau, Maya, 2019. "Carbon emissions and business cycles," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 1-19.
    8. Gian Luca Clementi & Berardino Palazzo, 2016. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(3), pages 1-41, July.
    9. Marek Antosiewicz & Piotr Lewandowski & Jan Witajewski-Baltvilks, 2016. "Input vs. Output Taxation—A DSGE Approach to Modelling Resource Decoupling," Sustainability, MDPI, vol. 8(4), pages 1-17, April.
    10. Fischer, Carolyn & Springborn, Michael, 2011. "Emissions targets and the real business cycle: Intensity targets versus caps or taxes," Journal of Environmental Economics and Management, Elsevier, vol. 62(3), pages 352-366.
    11. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    12. Barbara Annicchiarico & Fabio Di Dio, 2017. "GHG Emissions Control and Monetary Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 823-851, August.
    13. Xu, Xiaoliang & Xu, Xuefen & Chen, Qian & Che, Ying, 2018. "The impacts on CO2 emission reduction and haze by coal resource tax reform based on dynamic CGE model," Resources Policy, Elsevier, vol. 58(C), pages 268-276.
    14. Gene M. Grossman & Alan B. Krueger, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 353-377.
    15. Zhong, Meirui & Liu, Qing & Zeng, Anqi & Huang, Jianbai, 2018. "An effects analysis of China's metal mineral resource tax reform: A heterogeneous dynamic multi-regional CGE appraisal," Resources Policy, Elsevier, vol. 58(C), pages 303-313.
    16. Dissou, Yazid & Karnizova, Lilia, 2016. "Emissions cap or emissions tax? A multi-sector business cycle analysis," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 169-188.
    17. Acurio Vásconez, Verónica & Giraud, Gaël & Mc Isaac, Florent & Pham, Ngoc-Sang, 2015. "The effects of oil price shocks in a new-Keynesian framework with capital accumulation," Energy Policy, Elsevier, vol. 86(C), pages 844-854.
    18. Chan, Ying Tung, 2020. "Are macroeconomic policies better in curbing air pollution than environmental policies? A DSGE approach with carbon-dependent fiscal and monetary policies," Energy Policy, Elsevier, vol. 141(C).
    19. Wei, Shang-Jin & Xie, Yinxi, 2020. "Monetary policy in an era of global supply chains," Journal of International Economics, Elsevier, vol. 124(C).
    20. Atalla, Tarek & Blazquez, Jorge & Hunt, Lester C. & Manzano, Baltasar, 2017. "Prices versus policy: An analysis of the drivers of the primary fossil fuel mix," Energy Policy, Elsevier, vol. 106(C), pages 536-546.
    21. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    22. Huang, Kevin X.D. & Liu, Zheng, 2007. "Business cycles with staggered prices and international trade in intermediate inputs," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1271-1289, May.
    23. Christiano, Lawrence J. & Trabandt, Mathias & Walentin, Karl, 2010. "DSGE Models for Monetary Policy Analysis," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 7, pages 285-367, Elsevier.
    24. Campbell, John Y., 1994. "Inspecting the mechanism: An analytical approach to the stochastic growth model," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 463-506, June.
    25. Garth Heutel, 2012. "How Should Environmental Policy Respond to Business Cycles? Optimal Policy under Persistent Productivity Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 244-264, April.
    26. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    27. Niu, Tong & Yao, Xilong & Shao, Shuai & Li, Ding & Wang, Wenxi, 2018. "Environmental tax shocks and carbon emissions: An estimated DSGE model," Structural Change and Economic Dynamics, Elsevier, vol. 47(C), pages 9-17.
    28. Törmä, Hannu & Kujala, Susanna & Kinnunen, Jouko, 2015. "The employment and population impacts of the boom and bust of Talvivaara mine in the context of severe environmental accidents – A CGE evaluation," Resources Policy, Elsevier, vol. 46(P2), pages 127-138.
    29. J. Farmer & Cameron Hepburn & Penny Mealy & Alexander Teytelboym, 2015. "A Third Wave in the Economics of Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(2), pages 329-357, October.
    30. Annicchiarico, Barbara & Di Dio, Fabio, 2015. "Environmental policy and macroeconomic dynamics in a new Keynesian model," Journal of Environmental Economics and Management, Elsevier, vol. 69(C), pages 1-21.
    31. Nordhaus, William D., 1993. "Rolling the 'DICE': an optimal transition path for controlling greenhouse gases," Resource and Energy Economics, Elsevier, vol. 15(1), pages 27-50, March.
    32. Garth Heutel, 2012. "How Should Environmental Policy Respond to Business Cycles? Optimal Policy under Persistent Productivity Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 244-264, April.
    33. Punzi, Maria Teresa, 2019. "The impact of energy price uncertainty on macroeconomic variables," Energy Policy, Elsevier, vol. 129(C), pages 1306-1319.
    34. Lee, Seungrae & Park, Seung Jae, 2020. "Who should lead carbon emissions reductions? Upstream vs. downstream firms," International Journal of Production Economics, Elsevier, vol. 230(C).
    35. Dinda, Soumyananda, 2004. "Environmental Kuznets Curve Hypothesis: A Survey," Ecological Economics, Elsevier, vol. 49(4), pages 431-455, August.
    36. Marek Antosiewicz & Piotr Lewandowski & Jan Witajewski-Baltvilks, 2016. "Input vs. Output Taxation—A DSGE Approach to Modelling Resource Decoupling," Sustainability, MDPI, Open Access Journal, vol. 8(4), pages 1-17, April.
    37. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
    38. Plambeck, Erica L., 2012. "Reducing greenhouse gas emissions through operations and supply chain management," Energy Economics, Elsevier, vol. 34(S1), pages 64-74.
    39. William D. Nordhaus, 2017. "Evolution of Assessments of the Economics of Global Warming: Changes in the DICE model, 1992 – 2017," NBER Working Papers 23319, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wenjie Li & Chun Luo & Yiwei He & Yu Wan & Hongbo Du, 2023. "Estimating Inter-Regional Freight Demand in China Based on the Input–Output Model," Sustainability, MDPI, vol. 15(12), pages 1-16, June.
    2. Yuuki Yoshimoto & Koki Kishimoto & Kanchan Kumar Sen & Takako Mochida & Andrew Chapman, 2023. "Toward Economically Efficient Carbon Reduction: Contrasting Greening Plastic Supply Chains with Alternative Energy Policy Approaches," Sustainability, MDPI, vol. 15(17), pages 1-19, September.
    3. Chu-Lun Hsieh & Wen-Hsien Tsai, 2023. "Towards Carbon Neutrality and Circular Economy in the Glass Industry by Using the Production Decision Model," Energies, MDPI, vol. 16(22), pages 1-18, November.
    4. Ana Medina-López & Montserrat Jiménez-Partearroyo & Ángeles Cámara, 2023. "A Dynamic CGE Model for Optimization in Business Analytics: Simulating the Impact of Investment Shocks," Mathematics, MDPI, vol. 12(1), pages 1-42, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chan, Ying Tung, 2020. "Optimal emissions tax rates under habit formation and social comparisons," Energy Policy, Elsevier, vol. 146(C).
    2. Francesco Busato & Bruno Chiarini & Gianluigi Cisco & Maria Ferrara, 2023. "Green preferences," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(4), pages 3211-3253, April.
    3. Busato, Francesco & Chiarini, Bruno & Cisco, Gianluigi & Ferrara, Maria, 2021. "Greta Thunberg effect and Business Cycle Dynamics: A DSGE model," MPRA Paper 110141, University Library of Munich, Germany.
    4. Chan, Ying Tung, 2020. "Are macroeconomic policies better in curbing air pollution than environmental policies? A DSGE approach with carbon-dependent fiscal and monetary policies," Energy Policy, Elsevier, vol. 141(C).
    5. Ying Tung Chan, 2019. "Optimal Environmental Tax Rate in an Open Economy with Labor Migration—An E-DSGE Model Approach," Sustainability, MDPI, vol. 11(19), pages 1-38, September.
    6. Diluiso, Francesca & Annicchiarico, Barbara & Kalkuhl, Matthias & Minx, Jan C., 2021. "Climate actions and macro-financial stability: The role of central banks," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).
    7. Barbara Annicchiarico & Stefano Carattini & Carolyn Fischer & Garth Heutel, 2022. "Business Cycles and Environmental Policy: A Primer," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 3(1), pages 221-253.
    8. Chan, Ying Tung & Qiao, Hui, 2023. "Volatility spillover between oil and stock prices: Structural connectedness based on a multi-sector DSGE model approach with Bayesian estimation," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 265-286.
    9. Xiao, Bowen & Fan, Ying & Guo, Xiaodan, 2021. "Dynamic interactive effect and co-design of SO2 emission tax and CO2 emission trading scheme," Energy Policy, Elsevier, vol. 152(C).
    10. Ying Tung Chan, 2019. "The Environmental Impacts and Optimal Environmental Policies of Macroeconomic Uncertainty Shocks: A Dynamic Model Approach," Sustainability, MDPI, vol. 11(18), pages 1-26, September.
    11. Francesca Diluiso & Barbara Annicchiarico & Matthias Kalkuhl & Jan C. Minx, 2020. "Climate Actions and Stranded Assets: The Role of Financial Regulation and Monetary Policy," CESifo Working Paper Series 8486, CESifo.
    12. Barbara Annicchiarico & Marco Carli & Francesca Diluiso, 2022. "Climate Policies, Macroprudential Regulation, and the Welfare Cost of Business Cycles," CEIS Research Paper 543, Tor Vergata University, CEIS, revised 31 Oct 2022.
    13. Hinterlang, Natascha & Martin, Anika & Röhe, Oke & Stähler, Nikolai & Strobel, Johannes, 2021. "Using energy and emissions taxation to finance labor tax reductions in a multi-sector economy: An assessment with EMuSe," Discussion Papers 50/2021, Deutsche Bundesbank.
    14. Wang, Ren & Hou, Jie & Jiang, Zhujun, 2021. "Environmental policies with financing constraints in China," Energy Economics, Elsevier, vol. 94(C).
    15. Chan, Ying Tung & Zhao, Hong, 2019. "How do credit market frictions affect carbon cycles? an estimated DSGE model approach," MPRA Paper 106987, University Library of Munich, Germany, revised 05 Dec 2020.
    16. Hinterlang, Natascha & Martin, Anika & Röhe, Oke & Stähler, Nikolai & Strobel, Johannes, 2022. "Using energy and emissions taxation to finance labor tax reductions in a multi-sector economy," Energy Economics, Elsevier, vol. 115(C).
    17. Ren Wang & Yuxiang Bian & Han Gao & Jie Hou, 2023. "Optimal Environmental Policy for Heterogeneous Governments in China," IJERPH, MDPI, vol. 20(4), pages 1-12, February.
    18. Shapiro Finkelstein, Alan & Metcalf, Gilbert E., 2021. "The Macroeconomic Effects of a Carbon Tax to Meet the U.S. Paris Agreement Target: The Role of Firm Creation and Technology Adoption," FEEM Working Papers 311095, Fondazione Eni Enrico Mattei (FEEM).
    19. Stefano Carattini & Garth Heutel & Givi Melkadze, 2023. "Climate Policy, Financial Frictions, and Transition Risk," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 778-794, December.
    20. Eric Jondeau & Grégory Levieuge & Jean-Guillaume Sahuc & Gauthier Vermandel, 2022. "Environmental Subsidies to Mitigate Transition risk," Working Papers hal-04159804, HAL.

    More about this item

    Keywords

    Supply chain; E-DSGE model; Carbon tax rate; Ramsey problem;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003467. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.