The effect of a carbon tax rise on Iceland’s economy

Hansjörg Blöchliger, Sigurdur Johannesson and Marias Halldor Gestsson

No 1708, OECD Economics Department Working Papers from OECD Publishing

Abstract: This paper studies the potential impact of higher carbon taxation - to reach the government’s emission targets by 2030 - on Iceland’s economy. The paper is divided into two parts. First, a DSGE modelling exercise suggests that the equivalent of an oil price hike of between 30% and 55% is needed to reach the 2030 target, implying a GDP decline of between 0.3% and 0.6% by 2030. The impact on inflation would be very small. Second, a panel regression for the fishing industry reveals that a 40-50% oil price hike would be sufficient to reduce the entire fishing fleet’s emissions by 10%, raising total factor costs for the fishing companies by 4-5%. Such a cost hike would hardly threaten the competitiveness of the fishing industry. Both approaches assume that a carbon tax rise would have no effect on production technology.

Keywords: carbon tax; DSGE modelling; environmental economics; fisheries; Iceland (search for similar items in EconPapers)
JEL-codes: C68 H23 Q22 (search for similar items in EconPapers)
Date: 2022-04-08
New Economics Papers: this item is included in nep-dge, nep-ene, nep-env and nep-pub
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:oec:ecoaaa:1708-en

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