Taxing Fossil Fuels under Speculative Storage

Semih Tumen, Deren Ünalmış, Ibrahim Unalmis and Filiz Unsal

No 2014/228, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates the mechanisms through which environmental taxes on fossil fuel usage can affect the main macroeconomic variables in the short-run. We concentrate on a particular mechanism: speculative storage. The existence of forward-looking speculators in the model improves the effectiveness of tax policies in reducing fossil fuel usage. Improved policy effectiveness, however, is costly: it drives inflation and interest rates up, while impeding output. Based on this tradeoff, we seek an answer to the question how monetary policy should interact with environmental tax policies in our DSGE model of fossil fuel storage.

Keywords: WP; monetary policy; Fossil fuel; environmental taxes; speculative storage; DSGE; inflation indexation parameter; storage demand; energy price inflation; minimization problem; capital adjustment cost; demand shock; fossil fuel storage; consumption basket; consumption goods; CPI rise; storage facility; cost minimization problem; Non-renewable resources; Renewable energy; Consumption; Inflation; South America; Middle East (search for similar items in EconPapers)
Pages: 36
Date: 2014-12-18
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Taxing fossil fuels under speculative storage (2016)
Working Paper: Taxing Fossil Fuels under Speculative Storage (2015)
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