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Carbon Taxation When Climate Affects Productivity

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  • William K. Jaeger

Abstract

Based on a model where climate change affects productivity, the second-best optimal carbon tax is found to exceed marginal social damage by 53% and ‘‘marginal private damage’’ (aggregate households’ willingness to pay) by 73%. Annual welfare gains are estimated at $3.58 billion when marginal damage is $40 per ton; employment also increases. A carbon tax set at the Pigouvian rate raises welfare by only $3.17 billion. The seemingly contradictory results from the ‘‘tax interaction’’ literature are shown to arise only when the optimal environmental tax is compared to ‘‘marginal private damage,’’ and only for an amenity externality.

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  • William K. Jaeger, 2002. "Carbon Taxation When Climate Affects Productivity," Land Economics, University of Wisconsin Press, vol. 78(3), pages 354-367.
    • Handle: RePEc:uwp:landec:v:78:y:2002:i:3:p:354-367
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    1. repec:dgr:uvatin:20020095 is not listed on IDEAS
    2. Iain Fraser & Robert Waschik, 2010. "The Double Dividend Hypothesis in a CGE Model: Specific Factors and Variable Labour Supply," Working Papers 2010.02, School of Economics, La Trobe University.
    3. Goodstein, Eban, 2002. "Labor supply and the double-dividend," Ecological Economics, Elsevier, vol. 42(1-2), pages 101-106, August.
    4. Ekins, Paul & Pollitt, Hector & Summerton, Philip & Chewpreecha, Unnada, 2012. "Increasing carbon and material productivity through environmental tax reform," Energy Policy, Elsevier, vol. 42(C), pages 365-376.
    5. William Jaeger, 2011. "The Welfare Effects of Environmental Taxation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(1), pages 101-119, May.
    6. Li, Hui & Berrens, Robert P. & Bohara, Alok K. & Jenkins-Smith, Hank C. & Silva, Carol L. & Weimer, David L., 2004. "Would developing country commitments affect US households' support for a modified Kyoto Protocol?," Ecological Economics, Elsevier, vol. 48(3), pages 329-343, March.
    7. Patuelli, Roberto & Nijkamp, Peter & Pels, Eric, 2005. "Environmental tax reform and the double dividend: A meta-analytical performance assessment," Ecological Economics, Elsevier, vol. 55(4), pages 564-583, December.
    8. Bin Wu & Wanying Huang & Pengfei Liu, 2017. "Carbon Reduction Strategies Based on an NW Small-World Network with a Progressive Carbon Tax," Sustainability, MDPI, vol. 9(10), pages 1-22, September.

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    More about this item

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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