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Emissions Pricing Policies and Business Cycles: Fixed vs. Variable Tax Regimes
Author(s) -
Ramezani Fariba,
Harvie Charles,
Arjomandi Amir
Publication year - 2020
Publication title -
australian economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.308
H-Index - 29
eISSN - 1467-8462
pISSN - 0004-9018
DOI - 10.1111/1467-8462.12347
Subject(s) - economics , business cycle , variable (mathematics) , welfare , ad valorem tax , monetary economics , tax reform , natural resource economics , microeconomics , public economics , macroeconomics , market economy , mathematics , mathematical analysis
As by‐products, emissions follow economic fluctuations. Ignoring this fact in environmental policies can lead to unexpected emissions fluctuations and an increase in intervention costs. Using a real business cycle model, we compare two policies: a fixed tax policy where the price is constant over time and a variable tax regime where the tax rate is set at the beginning of each period. We find that while both programs result in lower emissions, a variable tax regime is preferable since first, it can ensure that the maximum welfare is always achieved, and second, it is more effective in stabilising emissions.