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Energy taxes and endogenous technological change

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  • Peretto, Pietro F.

Abstract

This paper studies the effects of a tax on energy use in a growth model where market structure is endogenous and jointly determined with the rate of technological change. Because this economy does not exhibit the scale effect (a positive relation between TFP growth and aggregate R&D), the tax has no effect on the steady-state growth rate. It has, however, important transitional effects that give rise to surprising results. Specifically, under the plausible assumption that energy demand is inelastic, there may exist a hump-shaped relation between the energy tax and welfare. This shape stems from the fact that the reallocation of resources from energy production to manufacturing triggers a temporary acceleration of TFP growth that generates a [radical sign]-shaped time profile of consumption. If endogenous technological change raises consumption sufficiently fast and by a sufficient amount in the long run, and households are sufficiently patient, the tax raises welfare despite the fact that--in line with standard intuition--it lowers consumption in the short run.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 57 (2009)
Issue (Month): 3 (May)
Pages: 269-283

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Handle: RePEc:eee:jeeman:v:57:y:2009:i:3:p:269-283

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Web page: http://www.elsevier.com/locate/inca/622870

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Keywords: Endogenous technological change Market structure Growth Energy taxes Environment;

References

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  1. Xepapadeas, Anastasios, 2005. "Economic growth and the environment," Handbook of Environmental Economics, Elsevier, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 23, pages 1219-1271 Elsevier.
  2. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, Elsevier, vol. 113(2), pages 363-398, April.
  3. Pietro Peretto & Michelle Connolly, 2007. "The Manhattan Metaphor," Journal of Economic Growth, Springer, Springer, vol. 12(4), pages 329-350, December.
  4. Pietro Peretto & Sjak Smulders, 2002. "Technological Distance, Growth And Scale Effects," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(481), pages 603-624, July.
  5. Robert B. Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 18(4), pages 115-134, Fall.
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  7. Peretto, Pietro F., 1999. "Cost reduction, entry, and the interdependence of market structure and economic growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 43(1), pages 173-195, February.
  8. Smulders, Sjak & de Nooij, Michiel, 2003. "The impact of energy conservation on technology and economic growth," Resource and Energy Economics, Elsevier, Elsevier, vol. 25(1), pages 59-79, February.
  9. Peretto, Pietro F., 1996. "Technological Change and Population Growth," Working Papers, Duke University, Department of Economics 96-28, Duke University, Department of Economics.
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  11. Zeng, Jinli & Zhang, Jie, 2002. "Long-run growth effects of taxation in a non-scale growth model with innovation," Economics Letters, Elsevier, Elsevier, vol. 75(3), pages 391-403, May.
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Citations

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Cited by:
  1. Chen, Shiyi, 2013. "What is the potential impact of a taxation system reform on carbon abatement and industrial growth in China?," Economic Systems, Elsevier, Elsevier, vol. 37(3), pages 369-386.
  2. Mónica Meireles & Isabel Soares & Óscar Afonso, 2010. "Economic Growth, Ecological Technology and Public Intervention," FEP Working Papers, Universidade do Porto, Faculdade de Economia do Porto 378, Universidade do Porto, Faculdade de Economia do Porto.
  3. López, Ramón E. & Yoon, Sang W., 2014. "Environmental Sustainability with a Pollution Tax," Working Papers, University of Maryland, Department of Agricultural and Resource Economics 166244, University of Maryland, Department of Agricultural and Resource Economics.
  4. Gerhard Glomm & Juergen Jung, 2012. "A Macroeconomic Analysis of Energy Subsidies in a Small Open Economy: The Case of Egypt," Caepr Working Papers, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington 2012-006, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  5. John W. Dawson & John J. Seater, 2005. "The Macroeconomic Effects of Federal Regulation," Working Papers, Department of Economics, Appalachian State University 05-02, Department of Economics, Appalachian State University.
  6. Bretschger, Lucas & Smulders, Sjak, 2012. "Sustainability and substitution of exhaustible natural resources," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(4), pages 536-549.
  7. Karen Pittel & Lucas Bretschger, 2009. "The Implications of Heterogeneous Resource Intensities on Technical Change and Growth," CER-ETH Economics working paper series, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich 09/120, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  8. Fischer, Carolyn & Heutel, Garth, 2013. "Environmental Macroeconomics: Environmental Policy, Business Cycles, and Directed Technical Change," Working Papers, University of North Carolina at Greensboro, Department of Economics 13-2, University of North Carolina at Greensboro, Department of Economics.
  9. Oura, Asuka & Morita, Tadashi, 2013. "Neutrality of an increase in the price of natural resources to the level of technology," Economic Modelling, Elsevier, Elsevier, vol. 32(C), pages 347-350.
  10. Lucas Bretschger & Nujin Suphaphiphat, 2012. "Use Less, Pay More: Can Climate Policy Address the Unfortunate Event for Being Poor?," CEEES Paper Series, European University at St. Petersburg, Department of Economics CE3S-04/12, European University at St. Petersburg, Department of Economics.
  11. Pietro Peretto & Michelle Connolly, 2007. "The Manhattan Metaphor," Journal of Economic Growth, Springer, Springer, vol. 12(4), pages 329-350, December.
  12. Brännlund, Runar & Lundgren, Tommy, 2008. "Environmental policy and profitability - Evidence from Swedish industry," UmeÃ¥ Economic Studies, UmeÃ¥ University, Department of Economics 750, Umeå University, Department of Economics.
  13. Karen Pittel & Lucas Bretschger, 2008. "Sectoral Heterogeneity, Resource Depletion, and Directed Technical Change: Theory and Policy," CER-ETH Economics working paper series, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich 08/96, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  14. John W. Dawson & John J. Seater, 2010. "Federal Regulation and Aggregate Economic Growth," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c015_050, DEGIT, Dynamics, Economic Growth, and International Trade.
  15. Webster, Allan & Ayatakshi, Sukanya, 2013. "The effect of fossil energy and other environmental taxes on profit incentives for change in an open economy: Evidence from the UK," Energy Policy, Elsevier, Elsevier, vol. 61(C), pages 1422-1431.

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