A Public Finance Perspective on Climate Policy: Six Interactions That May Enhance Welfare

Jan Siegmeier, Linus Mattauch, Max Franks, David Klenert, Anselm Schultes and Ottmar Edenhofer

No 2015.31, Working Papers from Fondazione Eni Enrico Mattei

Abstract: Climate change economics mostly neglects sizeable interactions of carbon pricing with other fiscal policy instruments. Conversely, public finance typically overlooks the effects of future decarbonization efforts when devising instruments for the major goals of fiscal policy. We argue that such a compartmentalisation is undesirable: policy design taking into account such interdependencies may enhance welfare and change the distribution of mitigation costs within and across generations. This claim is substantiated by analyzing six interactions between climate policy and public finance that are insufficiently explored in current research: (i) reduced tax competition in an open economy, (ii) portfolio effects induced through climate policy, (iii) restructuring public spending, (iv) revenue recycling for productive public investment, (v) greater intragenerational equity through appropriate revenue recycling and (vi) intergenerational Pareto-improvements through intertemporal transfers. We thereby structure the hitherto identified interactions between climate change mitigation and public finance and show that jointly considering carbon pricing and fiscal policy is legitimate and mandatory for sound policy appraisal.

Keywords: Carbon Pricing; Taxation; Public Spending; Redistribution; Policy Interactions (search for similar items in EconPapers)
JEL-codes: B41 H21 H23 H54 H60 Q54 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-ene, nep-env and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: A Public Finance Perspective on Climate Policy: Six Interactions That May Enhance Welfare (2015)
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