Taxing Fossil Fuels under Speculative Storage
Electronic Access:
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Summary:
This paper investigates the mechanisms through which environmental taxes on fossil fuel usage can affect the main macroeconomic variables in the short-run. We concentrate on a particular mechanism: speculative storage. The existence of forward-looking speculators in the model improves the effectiveness of tax policies in reducing fossil fuel usage. Improved policy effectiveness, however, is costly: it drives inflation and interest rates up, while impeding output. Based on this tradeoff, we seek an answer to the question how monetary policy should interact with environmental tax policies in our DSGE model of fossil fuel storage.
Series:
Working Paper No. 2014/228
Subject:
Consumption Environment Environmental taxes Inflation National accounts Non-renewable resources Prices Renewable energy Taxes
English
Publication Date:
December 18, 2014
ISBN/ISSN:
9781475573688/1018-5941
Stock No:
WPIEA2014228
Pages:
36
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