Article2023

The Macroeconomic Impact of Europe’s Carbon Taxes

142 citations0/0 files storedAmerican Economic Journal Macroeconomics

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Climate Change Policy and Economics Energy, Environment, Economic Growth Fiscal Policy and Economic Growth

Abstract

We estimate the macroeconomic impacts of carbon taxes on GDP and employment growth rates using 30 years of data on carbon taxation in various European countries. We find no evidence for a negative impact on employment or GDP growth but rather find a zero to modest positive impact. We also find a cumulative emissions reduction on the order of 4 to 6 percent for a $40/ton CO2 tax covering 30 percent of emissions. Reductions would likely be greater for a broad-based US carbon tax since European carbon taxes typically do not cover those sectors with the lowest marginal abatement costs. (JEL E23, E24, H23, Q54, Q58)

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References

2005Estimation and Inference of Impulse Responses by Local Projections 1995Environmental taxation and the double dividend: A reader's guide 2021Local Projections and VARs Estimate the Same Impulse Responses 2018Identification and Estimation of Dynamic Causal Effects in Macroeconomics Using External Instruments 2011The effect of carbon tax on per capita CO2 emissions 2014The impact of a carbon tax on manufacturing: Evidence from microdata 2017Jobs and climate policy: Evidence from British Columbia's revenue-neutral carbon tax 2019Impacts of a carbon tax across US household income groups: What are the equity-efficiency trade-offs?

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