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Optimal Climate Policies in a Dynamic Multi-Country Equilibrium Model

Author

Listed:
  • Elmar Hillebrand

    () (EEFA Research Institute)

  • Marten Hillebrand

    () (Johannes Gutenberg University Mainz)

Abstract

This paper develops a dynamic general equilibrium model with an arbitrary number of different regions to study the economic consequences of climate change under alternative climate policies. Regions di?er with respect to their state of economic development, factor endowments, and climate damages and trade on global markets for capital, output, and exhaustible resources. Our main result derives an optimal climate policy consisting of an emissions tax and a transfer policy. The optimal tax can be determined explicitly in our framework and is independent of any weights attached to the interests of different countries. Such weights only determine optimal transfers which distribute tax revenues across countries. We infer that the real political issue is not the tax policy required to reduce global warming but rather how the burden of climate change should be shared via transfer payments between di?erent countries. We propose a simple transfer policy which induces a Pareto improvement relative to the Laissez faire solution.

Suggested Citation

  • Elmar Hillebrand & Marten Hillebrand, 2017. "Optimal Climate Policies in a Dynamic Multi-Country Equilibrium Model," Working Papers 1704, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
  • Handle: RePEc:jgu:wpaper:1704
    as

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    File URL: https://download.uni-mainz.de/RePEc/pdf/Discussion_Paper_1704.pdf
    File Function: First version, 2015
    Download Restriction: no

    References listed on IDEAS

    as
    1. John Hassler & Per Krusell, 2012. "Economics And Climate Change: Integrated Assessment In A Multi-Region World," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 974-1000, October.
    2. Nordhaus, William D & Yang, Zili, 1996. "A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies," American Economic Review, American Economic Association, vol. 86(4), pages 741-765, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Optimal Climate Policies in a Dynamic Multi-Country Equilibrium Model
      by Christian Zimmermann in NEP-DGE blog on 2017-04-28 21:48:51

    More about this item

    Keywords

    Multi-region model; Dynamic equilibrium; Climate change; Optimal climate tax; Optimal transfer policy; Emissions trading system;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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