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Does the Adverse Announcement Effect of Climate Policy Matter? - A Dynamic General Equilibrium Analysis

Author

Listed:
  • Johannes Bröcker

    (Department of Economics, University of Southern Denmark)

  • Marie–Catherine Riekhof

    (ETH Zurich, Switzerland)

Abstract

We consider a carbon emissions tax announced today, but implemented after a known time-lag. Before implementation, the announcement induces higher emissions than without intervention. In welfare terms, this adverse announcement effect could more than outweigh the gain after tax implementation. We quantify a ‘critical lag’ such that a shorter (longer) implementation lag is a welfare gain (loss) over nointervention. We identify resource scarcity as the main driver for a short critical lag. The model is a global Ramsey Model extended by an exhaustible carbon resource and linked to a climate model.

Suggested Citation

  • Johannes Bröcker & Marie–Catherine Riekhof, 2016. "Does the Adverse Announcement Effect of Climate Policy Matter? - A Dynamic General Equilibrium Analysis," CER-ETH Economics working paper series 16/254, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:16-254
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    File URL: http://www.cer.ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/WP-16-254.pdf
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    More about this item

    Keywords

    Climate Policy; Announcement Effect; Dynamic General Equilibrium; Non-renewable Resource; Backstop; Green Paradox; Welfare Evaluation;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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