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Fiscal Consolidation and Climate Policy: An Overlapping Generations Perspective

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  • Rausch, Sebastian

Abstract

We examine the distributional and e ciency impacts of climate policy in the context of fiscal consolidation in a dynamic general-equilibrium overlapping generations model of the US economy. The model includes a disaggregated production structure, including energy sector detail and advanced low- or zero-carbon energy technologies, and detail on government taxes and spending. In contrast to revenue-neutral carbon tax swaps, using the carbon revenue for deficit reduction implies a relaxation of future public budgets as debt repayment results in lower interest obligations. While we show that the intergenerational welfare impacts depend importantly on what tax recycling instrument is used, we find that combining debt consolidation with a carbon policy entails the possibility of sustained welfare gains for future generations. We thus argue that combining fiscal and climate policy may o er the chance for positive societal gains (without considering potential benefits from averted climate change). Importantly, this may enhance the political support for revenue-raising climate policies that are framed over the next couples of decades.

Suggested Citation

  • Rausch, Sebastian, 2013. "Fiscal Consolidation and Climate Policy: An Overlapping Generations Perspective," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80026, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc13:80026
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    1. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September.
    2. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
    3. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Springer;Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
    4. Bovenberg, A.L. & Goulder, L.H., 1996. "Optimal environmental taxation in the presence of other taxes : General equilibrium analyses," Other publications TiSEM 5d4b7517-c5c8-4ef6-ab76-3, Tilburg University, School of Economics and Management.
    5. Rasmussen, Tobias N. & Rutherford, Thomas F., 2004. "Modeling overlapping generations in a complementarity format," Journal of Economic Dynamics and Control, Elsevier, vol. 28(7), pages 1383-1409, April.
    6. Jensen, Svend E Hougaard & Rutherford, Thomas F, 2002. " Distributional Effects of Fiscal Consolidation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 471-493, September.
    7. Robert J. Barro & Charles J. Redlick, 2011. "Macroeconomic Effects From Government Purchases and Taxes," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 51-102.
    8. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
    9. Lau, Morten I. & Pahlke, Andreas & Rutherford, Thomas F., 2002. "Approximating infinite-horizon models in a complementarity format: A primer in dynamic general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 26(4), pages 577-609, April.
    10. Babiker, Mustafa H. & Metcalf, Gilbert E. & Reilly, John, 2003. "Tax distortions and global climate policy," Journal of Environmental Economics and Management, Elsevier, vol. 46(2), pages 269-287, September.
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    Citations

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    Cited by:

    1. Mouez Fodha & Thomas Seegmuller & Hiroaki Yamagami, 2014. "Environmental Policies under Debt Constraint," AMSE Working Papers 1431, Aix-Marseille School of Economics, Marseille, France, revised Jun 2014.
    2. Frédéric Gonand, 2015. "The Carbon Tax, Ageing and Pension Deficits," Post-Print hal-01251698, HAL.
    3. Anna Grodecka & Karlygash Kuralbayeva, 2014. "The Price vs Quantity Debate: Climate policy and the role of business cycles," OxCarre Working Papers 137, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    4. Jan Siegmeier & Linus Mattauch & Max Franks & David Klenert & Anselm Schultes & Ottmar Edenhofer, 2015. "A Public Finance Perspective on Climate Policy: Six Interactions That May Enhance Welfare," Working Papers 2015.31, Fondazione Eni Enrico Mattei.
    5. Wang, Qian & Hubacek, Klaus & Feng, Kuishuang & Wei, Yi-Ming & Liang, Qiao-Mei, 2016. "Distributional effects of carbon taxation," Applied Energy, Elsevier, vol. 184(C), pages 1123-1131.
    6. Roberton C. Williams III & Hal Gordon & Dallas Burtraw & Jared C. Carbone & Richard D. Morgenstern, 2015. "The Initial Incidence of a Carbon Tax Across Income Groups," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(1), pages 195-214, March.
    7. Gabriel Bachner & Birgit Bednar-Friedl, 2016. "Counterbalancing the Effects of Climate Change Adaptation on Public Budgets: Factor Taxes, Transfers, or Foreign Lending?," Graz Economics Papers 2016-07, University of Graz, Department of Economics.
    8. Eduardo L. Giménez & Miguel Rodríguez, 2016. "Optimality of relaxing revenue-neutral restrictions in green tax reforms," Working Papers. Collection A: Public economics, governance and decentralization 1605, Universidade de Vigo, GEN - Governance and Economics research Network.
    9. Pereira, Alfredo & Pereira, Rui, 2016. "On the Optimal Use of Revenues from a CO2 Tax and the Importance of Labor Market Conditions," MPRA Paper 77630, University Library of Munich, Germany.
    10. Gonand, Frédéric & Jouvet, Pierre-André, 2015. "The “second dividend” and the demographic structure," Journal of Environmental Economics and Management, Elsevier, vol. 72(C), pages 71-97.
    11. repec:kap:enreec:v:67:y:2017:i:2:d:10.1007_s10640-015-9984-z is not listed on IDEAS
    12. repec:red:issued:16-217 is not listed on IDEAS
    13. Rausch, Sebastian & Abrell, Jan, 2014. "Optimal Dynamic Carbon Taxation in a Life-Cycle Model with Distortionary Fiscal Policy," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100513, Verein für Socialpolitik / German Economic Association.
    14. Stephie Fried & Kevin Novan & William Peterman, 2018. "The Distributional Effects of a Carbon Tax on Current and Future Generations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 30-46, October.
    15. Marian Zaharia & Aurelia Pătrașcu & Manuela Rodica Gogonea & Ana Tănăsescu & Constanța Popescu, 2017. "A Cluster Design on the Influence of Energy Taxation in Shaping the New EU-28 Economic Paradigm," Energies, MDPI, Open Access Journal, vol. 10(2), pages 1-21, February.

    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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