Title: The Macroeconomic Effects of Carbon Taxes: The Role of Investment and Emission Rate Heterogeneity
Authors: Nora Traum - HEC Montreal (Canada) [presenting]
Abstract: We study the quantitative effects of a carbon tax in a dynamic, general equilibrium model with production heterogeneity and technology adoption. The vintage technology available to a firm determines its emission rate. Adopting newer technology is subject to a non-convex adjustment cost that leads firms to have (S,s) policy functions for technology and capital adjustment. As new and old technologies coexist, the endogenous distribution of vintage technology and capital stocks determines the aggregate effects of a carbon tax. We discipline capital and emission heterogeneity in the model with U.S. microeconomic data. We find that firm heterogeneity in emission rates determines the aggregate effects of a carbon tax, both in the short- and long- run. In the long run, GDP losses from a representative firm model are more than double those with heterogeneous emission rates. Short-run effects depend on the policy implementation, with policies initially exempting older establishments increasing emissions.