Road to Net Zero : carbon policy and redistributional dynamics in the green transition / Alessandro Sardone ; editor: Halle Institute for Economic Research (IWH) - Member of the Leibniz Association
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Road to Net Zero : carbon policy and redistributional dynamics in the green transition Discovery
1939094348
URN
urn:nbn:de:gbv:3:2-123456789-1178340
DOI
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Skalierung
Autorin / Autor
Beiträger
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Erschienen
Halle (Saale), Germany : Halle Institute for Economic Research (IWH) - Member of the Leibniz Association, 2025
Umfang
1 Online-Ressource (III, 67 Seiten, 2,62 MB) : Diagramme
Ausgabevermerk
Sprache
eng
Anmerkungen
Literaturverzeichnis: Seite 42-46
Inhaltliche Zusammenfassung
This paper examines the macroeconomic and distributional effects of the European Union's transition to Net Zero emissions through a gradually increasing carbon tax. I develop a New Keynesian Environmental DSGE model with two household types and distinct energy and non-energy sectors. Five alternative uses of carbon tax revenues are considered: equal transfers to households, targeted transfers to Hand-to-Mouth households, subsidies to green energy firms, and reductions in labor and capital income taxes. In the absence of technological progress, the carbon tax policy induces a persistent increase in energy prices and a reduction in GDP, investment, and consumption. Headline inflation falls below zero in the medium run, reflecting weaker aggregate demand. Distributional outcomes vary significantly depending on the implemented revenue recycling scheme: targeted transfers are the most progressive but entail larger macroeconomic costs, while subsidies and tax cuts mitigate output and investment losses but are less effective in narrowing the consumption gap. A limited foresight scenario, in which agents learn about policy targets sequentially, generates more volatile adjustment paths and temporary inflationary spikes around announcements, but long-run outcomes remain close to the baseline.
Schriftenreihe
IWH discussion papers ; 2025, no. 16 (October 2025) ppn:837399270