Emissions Pricing Policies and Business Cycles: Fixed vs. Variable Tax Regimes
Charles Harvie and
Australian Economic Review, 2020, vol. 53, issue 1, 76-92
As by‐products, emissions follow economic fluctuations. Ignoring this fact in environmental policies can lead to unexpected emissions fluctuations and an increase in intervention costs. Using a real business cycle model, we compare two policies: a fixed tax policy where the price is constant over time and a variable tax regime where the tax rate is set at the beginning of each period. We find that while both programs result in lower emissions, a variable tax regime is preferable since first, it can ensure that the maximum welfare is always achieved, and second, it is more effective in stabilising emissions.
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Persistent link: https://EconPapers.repec.org/RePEc:bla:ausecr:v:53:y:2020:i:1:p:76-92
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