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Dynamic Impacts on Growth and Intergenerational Effects of Energy Transition in a Time of Fiscal Consolidation

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  • Frédéric Gonand

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine, Chaire économie du climat - Chaire économie du climat)

Abstract

Social planners in most western countries will be facing two long-lasting challenges in the next years: energy transition and fiscal consolidation. One problem is that governments might consider that implementing an energy transition could get in the way of achieving a fiscal consolidation. If so, interrupting the energy transition in a time of fiscal consolidation would involve significant aggregate impacts on activity and intergenerational redistributive effects. This article tries to assess them empirically. It relies on an overlapping-generations framework in a general equilibrium setting, with a detailed energy module. The model is parameterized on data provided by OECD/IEA for France. Different results emerge. Renouncing to the energy transition would slightly foster the level of GDP during the next 10 to 15 years - depending on the dynamics of the prices of fossil fuels on world markets - but weigh on it more significantly afterwards (up to -1% in 2050). If the prices of fossil fuels keep increasing in the future, implementing an energy transition could have broadly the same favourable effects on the GDP level in the long run as those of a fiscal consolidation diminishing significantly public spending instead of raising taxes. In the long-run, the GDP would be maximized by implementing an energy transition and simultaneously lessening the public deficit by lowering some public expenditure, a policy that would entail an overall gain of around 1,6% of GDP in 2050. Stopping the energy transition would also bring about intergenerational issues. It would be detrimental to the intertemporal wellbeing of almost all cohorts alive in 2010. A fiscal policy with lower public expenditures and frozen tax rates may be still more favourable to young and future generations than implementing an energy transition. However, renouncing to an energy transition would annihilate most of these proyouth effects.

Suggested Citation

  • Frédéric Gonand, 2017. "Dynamic Impacts on Growth and Intergenerational Effects of Energy Transition in a Time of Fiscal Consolidation," Working Papers hal-01521866, HAL.
  • Handle: RePEc:hal:wpaper:hal-01521866
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01521866
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    References listed on IDEAS

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    More about this item

    Keywords

    fiscal consolidation; general equilibrium; Energy transition; intergenerational redistribution; overlapping generations;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • L7 - Industrial Organization - - Industry Studies: Primary Products and Construction
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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