Working Paper: NBER ID: w27488
Authors: Gilbert E. Metcalf; James H. Stock
Abstract: Policy makers often express concern about the impact of carbon taxes on employment and GDP. Focusing on European countries that have implemented carbon taxes over the past 30 years, we estimate the macroeconomic impacts of these taxes on GDP and employment growth rates for various specifications and samples. Our point estimates suggest a zero to modest positive impact on GDP and total employment growth rates. More importantly, we find no robust evidence of a negative effect of the tax on employment or GDP growth. We examine evidence on whether the positive effects might stem from countries that used the carbon tax revenues to reduce other taxes; while the evidence is consistent with this view, it is inconclusive. We also consider the impact of the taxes on emission reductions and find a cumulative reduction on the order of 4 to 6 percent for a $40/ton CO2 tax covering 30% of emissions. We argue that reductions would likely be greater for a broad-based U.S. carbon tax since European carbon taxes do not include in the tax base those sectors with the lowest marginal costs of carbon pollution abatement.
Keywords: carbon taxes; macroeconomic impact; GDP; employment; emissions
JEL Codes: E62; H23; Q43; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| carbon tax revenues (H23) | other taxes (H29) |
| GDP growth (O49) | carbon tax rates (H23) |
| carbon tax rates (H23) | GDP growth (O49) |
| carbon tax rates (H23) | total employment growth rates (J49) |
| carbon taxes (H23) | cumulative emission reductions (Q52) |
| carbon tax (H23) | long-run growth rate of GDP (O49) |