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Capital Malleability and the Macroeconomic Costs of Climate Policy

Author

Listed:
  • Elisa Lanzi

    (School of Advanced Studies in Venice (SSAV) and Fondazione Eni Enrico Mattei (FEEM))

  • Ian Sue Wing

    (Dept. of Geography & Environment, Boston University and Joint Program on the Science & Policy of Global Change, MIT)

Abstract

This paper argues for introducing the role of capital malleability into the analysis of environmental policies. The issue is explored by means of a theoretical model, a numerical analysis and a computable general equilibrium (CGE) model. Considering the three approaches together is fundamental in obtaining theory-compatible policy-relevant results. The model outcomes reveal differences between results under separate assumptions regarding the malleability of capital. When capital is imperfectly malleable a carbon policy is less effective than under the assumption of perfect malleability of capital. Therefore, it is important that, especially for the analysis of short-term environmental regulations, the issue of capital malleability is taken into consideration.

Suggested Citation

  • Elisa Lanzi & Ian Sue Wing, 2010. "Capital Malleability and the Macroeconomic Costs of Climate Policy," Working Papers 2010.19, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2010.19
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    Keywords

    General Equilibrium; CGE Models; Climate Change Policy;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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