The green metamorphosis of a small open economy

Florencia Airaudo, Evi Pappa and Hernan D. Seoane

No 17863, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We design a small open economy model where production combines energy and traditional factors with low short run substitutability and efficient technology adoption. We study green transitional dynamics. Permanent increases in brown energy prices induce a green transition with short run inflation and persistent output losses. Fiscal policy impacts the transition. Brown energy taxes are inflationary and crowd out brown energy use in favor of green energy. Green public investment or green subsidies have moderate macroeconomic effects, but do not crowd out brown energy use. We discuss fiscal costs and evaluate welfare along the green transition using different metrics.

Keywords: Transitional; dynamics (search for similar items in EconPapers)
JEL-codes: O44 Q48 Q55 (search for similar items in EconPapers)
Date: 2023-01
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Working Paper: The Green Metamorphosis of a small Open Economy (2023)
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