Climate Policy and Optimal Public Debt

Maximilian Kellner and Marco Runkel ()

No 8865, CESifo Working Paper Series from CESifo

Abstract: This paper analyzes the optimal level of public debt when taxes are used not only for funding public expenditures but also for correcting externalities from climate change. Taking into account externalities implies that the optimal policy deviates from tax smoothing. Provided cumulative marginal damages are larger from today’s than from tomorrow’s emissions, the internalization of externalities decreases [increases] optimal debt if tax rates are on the increasing [decreasing] side of the Laffer curve. The reversed holds if the cumulative marginal damages increase over time. Allowing for endogenous adaptation investments reduces the deviation from tax-smoothing, but nevertheless increases optimal debt.

Keywords: environmental externality; public debt; tax smoothing (search for similar items in EconPapers)
JEL-codes: H23 H63 Q54 Q58 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ene, nep-env, nep-pbe and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Climate Policy and Optimal Public Debt (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8865

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