Seminars

Tuesday, December 3rd, 2024

Thomas Douenne (University of Amsterdam) will present “Optimal Fiscal Policy in a Climate-Economy Model with Heterogeneous Households”.

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.