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Taxing Fossil Fuels under Speculative Storage

Author

Listed:
  • Semih Tumen
  • Deren Unalmis
  • Ibrahim Unalmis
  • D. Filiz Unsal

Abstract

This paper investigates the mechanisms through which environmental taxes on fossil fuel usage can affect the main macroeconomic variables in the short-run. We concentrate on a particular mechanism : speculative storage. The existence of forward-looking speculators in the model improves the effectiveness of tax policies in reducing fossil fuel usage. Improved policy effectiveness, however, is costly : it drives inflation and interest rates up, while impeding output. Based on this tradeoff, we seek an answer to the question how monetary policy should interact with environmental tax policies in our DSGE model of fossil fuel storage.

Suggested Citation

  • Semih Tumen & Deren Unalmis & Ibrahim Unalmis & D. Filiz Unsal, 2015. "Taxing Fossil Fuels under Speculative Storage," Working Papers 1502, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1502
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    Cited by:

    1. repec:eee:renene:v:120:y:2018:i:c:p:60-68 is not listed on IDEAS
    2. Chen, Zi-yue & Nie, Pu-yan, 2016. "Effects of carbon tax on social welfare: A case study of China," Applied Energy, Elsevier, vol. 183(C), pages 1607-1615.

    More about this item

    Keywords

    Fossil fuel; Environmental taxes; Speculative storage; DSGE;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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