Title: Fiscal Policy for Climate Change

Speaker: Florian Oswald, Sciences Po University, France
Moderator: Severin Reissl, RFF-CMCC European Institute on Economics and the Environment (EIEE), Centro Euro Mediterraneo sui Cambiamenti Climatici, Italy

Authors: François Le Grand, Florian Oswald, Xavier Ragot and Aurélien Saussay

Abstract: Fiscal policy offers a number of levers to reduce carbon emissions. Climate change mitigation can for example be
implemented through carbon taxation on the production or consumption side, or through debt-financed public investments in
emission-reducing infrastructure. Yet these various instruments may differ significantly in their cost-effectiveness in reducing
emissions and in their distributional impacts among households. We develop a macroeconomic heterogeneous-agent model with environmental externalities to address both of these questions. In this model, households derive utility from the consumption of carbon-intensive and clean goods, and from the environmental damages resulting from CO2 emissions. In addition, CO2 emissions affect productivity and thus relative prices. We use household data on the distribution carbon-intensive goods consumption to estimate preference parameters. Starting from a realistic fiscal structure, we then implement various tax reforms to analyze their effects on both CO2 emissions and consumption along the consumption distribution.