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MAKING CARBON TAXATION A GENERATIONAL WIN WIN
Author(s) -
Kotlikoff Laurence,
Kubler Felix,
Polbin Andrey,
Sachs Jeffrey,
Scheidegger Simon
Publication year - 2021
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12483
Subject(s) - carbon tax , redistribution (election) , economics , social planner , damages , planner , carbon fibers , welfare , overlapping generations model , natural resource economics , coal , fossil fuel , greenhouse gas , microeconomics , market economy , ecology , political science , computer science , algorithm , composite number , programming language , politics , law , biology , engineering , waste management
Carbon taxation is mostly studied in social planner or infinitely lived‐agent models, which obscure carbon taxation's potential to produce a generational win win. This article's large‐scale, dynamic 55‐period, overlapping generations model calculates the carbon tax policy delivering the highest uniform welfare gain to all current and future generations. Our model features coal, oil, and gas, increasing extraction costs, clean energy, technical and demographic change, and Nordhaus' carbon/temperature/damage functions. Assuming high‐end carbon damages, the optimal carbon tax is $70, rising annually at 1.5%. This policy raises all generations' welfare by almost 5%. However, doing so requires major intergenerational redistribution.