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Optimal Climate Policies in a Dynamic Multi-Country Equilibrium Model

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  • Hillebrand, Marten
  • Hillebrand, Elmar
Abstract
This paper develops a dynamic general equilibrium model with an arbitrary number of different regions to study alternative climate policies and the consequences of climate change. Countries differ with respect to their state of economic development, factor endowments, and climate damages and trade on global markets for capital and exhaustible resources. Our main theoretical result derives an optimal climate policy consisting of an optimal emissions tax and an optimal transfer policy. The optimal climate tax can be determined explicitly in our framework and is independent of any weights attached to the interests of different countries. These weights only determine optimal transfers which distribute tax revenues across countries. We infer that the real political issue is not the amount of taxation required to reduce global warming but how the burden of climate change should be shared via transfer payments between different countries. To offer some guidance on this matter, we conduct a numerical simulation study which analyzes the optimal transfers between OECD and Non-OECD countries.

Suggested Citation

  • Hillebrand, Marten & Hillebrand, Elmar, 2016. "Optimal Climate Policies in a Dynamic Multi-Country Equilibrium Model," VfS Annual Conference 2016 (Augsburg): Demographic Change 145903, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc16:145903
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Optimal Climate Policies in a Dynamic Multi-Country Equilibrium Model
      by Christian Zimmermann in NEP-DGE blog on 2017-04-28 21:48:51

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    Cited by:

    1. Elisa Belfiori & Daniel R. Carroll & Sewon Hur, 2024. "Unequal Climate Policy in an Unequal World," Globalization Institute Working Papers 427, Federal Reserve Bank of Dallas.
    2. Hillebrand, Elmar & Hillebrand, Marten, 2023. "Who pays the bill? Climate change, taxes, and transfers in a multi-region growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 153(C).
    3. Borissov, Kirill & Bretschger, Lucas, 2022. "Optimal carbon policies in a dynamic heterogeneous world," European Economic Review, Elsevier, vol. 148(C).
    4. Hambel, Christoph & Kraft, Holger & Schwartz, Eduardo, 2021. "The social cost of carbon in a non-cooperative world," Journal of International Economics, Elsevier, vol. 131(C).
    5. Elisa Belfiori & Manuel Macera, 2024. "Climate Inequality: Carbon Capture for Redistribution," CESifo Working Paper Series 11239, CESifo.
    6. Hillebrand, Elmar & Hillebrand, Marten, 2024. "The Global Water Cycle and Climate Policies in a General Equilibrium Model," VfS Annual Conference 2024 (Berlin): Upcoming Labor Market Challenges 302343, Verein für Socialpolitik / German Economic Association.
    7. Arik Sadeh & Claudia Florina Radu & Cristina Feniser & Andrei Borşa, 2020. "Governmental Intervention and Its Impact on Growth, Economic Development, and Technology in OECD Countries," Sustainability, MDPI, vol. 13(1), pages 1-30, December.
    8. Hassler, J. & Krusell, P. & Smith, A.A., 2016. "Environmental Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1893-2008, Elsevier.
    9. Ernst, Anne & Hinterlang, Natascha & Mahle, Alexander & Stähler, Nikolai, 2023. "Carbon pricing, border adjustment and climate clubs: Options for international cooperation," Journal of International Economics, Elsevier, vol. 144(C).
    10. Alper Aslan & Buket Altinoz & Melike Atay Polat, 2024. "Investigation of the Sensitivity of EU Countries to Temperature Anomalies in Terms of Economic and Technological Indicators," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 2401-2421, March.

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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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