First-and second-best allocations under economic and environmental uncertainty

Konstantinos Angelopoulos (), George Economides and Apostolis Philippopoulos ()

International Tax and Public Finance, 2013, vol. 20, issue 3, 360-380

Abstract: This paper uses a micro-founded DSGE model to compare second-best optimal environmental policy, and the resulting Ramsey allocation, to first-best allocation. The focus is on the source and size of uncertainty, and how this affects optimal choices and the comparison between second- and first-best. While higher economic volatility is bad for social welfare in all cases studied, the welfare effects of higher environmental volatility depend on its size and the effectiveness of public abatement policy. The Ramsey environmental tax is pro-cyclical when there is an economic shock, while it is counter-cyclical when there is an environmental shock. Copyright Springer Science+Business Media, LLC 2013

Keywords: General equilibrium; Uncertainty; Environmental policy; Second best; C68; D81; H23 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (73)

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Working Paper: First-and second-best allocations under economic and environmental uncertainty (2010)
Working Paper: First-and second-best allocations under economic and environmental uncertainty (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:20:y:2013:i:3:p:360-380

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DOI: 10.1007/s10797-012-9234-z

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