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Carbon Taxation and Greenflation: Evidence from Europe and Canada

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  • Maximilian Konradt
  • Beatrice Weder

Abstract

This paper studies the effects of carbon pricing on inflation dynamics. We construct a sample of carbon taxes implemented in Europe and Canada over three decades and estimate the response of inflation and price components to carbon pricing. Our empirical results suggest that carbon taxes did not significantly increase inflation, with dynamic effects estimated around zero in most specifications. Instead we find support for relative price changes, increasing the cost of energy but leaving the price of other goods and services unaffected. This is consistent with previous findings on the limited aggregate economic costs of carbon taxes. Based on the cross-section of taxes in Europe, we provide suggestive evidence that the response of inflation was especially muted in countries with revenue-neutral carbon taxes and autonomous central banks that can accommodate potential inflationary pressure associated with carbon pricing.

Suggested Citation

  • Maximilian Konradt & Beatrice Weder, 2023. "Carbon Taxation and Greenflation: Evidence from Europe and Canada," Journal of the European Economic Association, European Economic Association, vol. 21(6), pages 2518-2546.
    • Handle: RePEc:oup:jeurec:v:21:y:2023:i:6:p:2518-2546.
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    File URL: http://hdl.handle.net/10.1093/jeea/jvad020
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    References listed on IDEAS

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    1. Olivier J. Blanchard & Marianna Riggi, 2013. "WHY ARE THE 2000s SO DIFFERENT FROM THE 1970s? A STRUCTURAL INTERPRETATION OF CHANGES IN THE MACROECONOMIC EFFECTS OF OIL PRICES," Journal of the European Economic Association, European Economic Association, vol. 11(5), pages 1032-1052, October.
    2. Olivier Coibion & Yuriy Gorodnichenko, 2015. "Is the Phillips Curve Alive and Well after All? Inflation Expectations and the Missing Disinflation," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 197-232, January.
    3. Gao, Liping & Kim, Hyeongwoo & Saba, Richard, 2014. "How do oil price shocks affect consumer prices?," Energy Economics, Elsevier, vol. 45(C), pages 313-323.
    4. Hooker, Mark A, 2002. "Are Oil Shocks Inflationary? Asymmetric and Nonlinear Specifications versus Changes in Regime," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 540-561, May.
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    Cited by:

    1. Diego R. Känzig & Maximilian Konradt, 2024. "Climate Policy and the Economy: Evidence from Europe’s Carbon Pricing Initiatives," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(3), pages 1081-1124, September.
    2. Morão, Hugo, 2024. "The impact of carbon policy news on the national energy industry," Energy Economics, Elsevier, vol. 134(C).
    3. Yannis Dafermos, 2024. "The climate crisis meets the ECB: tinkering around the edges or paradigm shift?," Working Papers 264, Department of Economics, SOAS University of London, UK.
    4. Xia, Xiqiang & Chishti, Muhammad Zubair & Dogan, Eyup, 2024. "Transition towards the sustainable development: unraveling the effects of mineral markets, Belt & Road Initiative, and the Paris Agreement on green economic growth," Resources Policy, Elsevier, vol. 91(C).
    5. Ren'e Aid & Maria Arduca & Sara Biagini & Luca Taschini, 2025. "Emission impossible: Balancing Environmental Concerns and Inflation," Papers 2501.16953, arXiv.org.
    6. Agung Suwandaru & Widhiyo Sudiyono & Ahmed Shawdari & Yuntawati Fristin, 2024. "Understanding the Economic Drivers of Climate Change in Southeast Asia: An Econometric Analysis," Economies, MDPI, vol. 12(8), pages 1-21, August.
    7. Nicolás Aguila & Joscha Wullweber, 2024. "Greener and cheaper: green monetary policy in the era of inflation and high interest rates," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 14(1), pages 39-60, March.
    8. Yoshihiko Hogen & Yojiro Ito & Kenji Kanai & Naoya Kishi, 2024. "Changes in the Global Economic Landscape and Issues for Japan's Economy," Bank of Japan Working Paper Series 24-E-3, Bank of Japan.
    9. Adrien Bilal & James H. Stock, 2025. "Macroeconomics and Climate Change," NBER Working Papers 33567, National Bureau of Economic Research, Inc.
    10. Chung, Changwoo & Kim, Jinsoo, 2024. "Greenflation, a myth or fact? Empirical evidence from 26 OECD countries," Energy Economics, Elsevier, vol. 139(C).

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