Macro Seminar

Speaker: Marcelo Pedroni

Title: Optimal Fiscal Policy in a Climate-Economy Model with Heterogeneous Households

Format: Hybrid

Abstract: We study optimal fiscal policy to address climate change and inequality. We theoretically characterize optimal carbon and income taxes and quantify them for the US economy with a  climate model calibrated to DICE. In contrast to the representative-agent setting, we find that (i) tax distortions have a negligible effect on the optimal carbon tax; (ii) inequality only  slightly reduces it; (iii) the revenue from carbon taxes is optimally split halfway between reducing tax distortions and increasing transfers. Unlike the double-dividend policy, optimal carbon  taxation has progressive welfare effects and low-income households benefit even in the short run.

Organiser: Sekyu

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