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The Economic Consequences of Effective Carbon Taxes

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  • Felix Kapfhammer

Abstract

This paper studies the sectoral and macroeconomic consequences of carbon taxes in four Nordic countries using a novel monthly measure of effective carbon tax rates. The suggested measure accounts for the time-varying emission coverage of taxes that are both explicitly and implicitly levied on greenhouse gas-emitting goods, thereby solving several issues of existing carbon tax measures currently used by the literature. Employing the new measure in a local projection setting, I find that carbon taxes reduce emissions as expected but also impair macroeconomic activity—though there is some heterogeneity in the effects across sectors and countries.

Suggested Citation

  • Felix Kapfhammer, 2026. "The Economic Consequences of Effective Carbon Taxes," American Economic Journal: Macroeconomics, American Economic Association, vol. 18(3), pages 174-199, July.
    • Handle: RePEc:aea:aejmac:v:18:y:2026:i:3:p:174-99
    DOI: 10.1257/mac.20230083
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    References listed on IDEAS

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    1. Gilbert E. Metcalf & James H. Stock, 2020. "Measuring the Macroeconomic Impact of Carbon Taxes," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 101-106, May.
    2. Bertrand Gruss & Suhaib Kebhaj, 2019. "Commodity Terms of Trade: A New Database," IMF Working Papers 2019/021, International Monetary Fund.
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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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