Democratic Climate Policies with Overlapping Generations

Arnaud Goussebaïle (agoussebaile@ethz.ch)
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Arnaud Goussebaïle: ETHZ

Environmental & Resource Economics, 2024, vol. 87, issue 5, No 7, 1249-1273

Abstract: Abstract An extensive climate policy literature provides various recommendations for mitigating climate change, but these recommendations are not supported democratically, since the models employed consider either infinitely-lived individuals or normative social objectives (or both). In contrast, the present paper provides policy recommendations capable of incorporating democratic processes. I develop an overlapping generation model with political process micro-foundations and show how democratic climate policies are interconnected with other democratic policies. Time inconsistent social objectives combined with commitment issues lead to an inefficient tax on capital accumulation and a climate policy below the efficient level; while suppressing the tax on capital accumulation generates a climate policy even further below the efficient level. I derive a novel politico-economic Keynes–Ramsey rule for the market interest rate, which is useful for calculating the climate policy level. I show that individual pure time preference, individual altruism toward descendants, and young generation political power are key determinants of democratic climate policy ambition.

Keywords: Climate change; Discounting; Externality; Overlapping generations; Political economy (search for similar items in EconPapers)
JEL-codes: D6 D7 E6 Q5 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10640-024-00863-0

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