Emissions Pricing Policies and Business Cycles: Fixed vs. Variable Tax Regimes |
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| Authors: | Fariba Ramezani Charles Harvie Amir Arjomandi |
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| Institution: | 1. Ramezani: SMART Infrastructure Facility, Faculty of Engineering, University of Wollongong, Wollongong, Australia;2. Harvie: School of Accounting, Economics and Finance, Faculty of Business, University of Wollongong, Wollongong, Australia;3. Arjomandi: School of Accounting, Economics and Finance, Faculty of Business, University of Wollongong, Wollongong, Australia. Corresponding author: Ramezani, email <4. faribark@uow.edu.au>5. .The authors wish to thank 6. anonymous reviewers and the editor for very helpful comments on earlier drafts of the paper. |
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| Abstract: | As by-products, emissions follow economic fluctuations. Ignoring this fact in environmental policies can lead to unexpected emissions fluctuations and an increase in intervention costs. Using a real business cycle model, we compare two policies: a fixed tax policy where the price is constant over time and a variable tax regime where the tax rate is set at the beginning of each period. We find that while both programs result in lower emissions, a variable tax regime is preferable since first, it can ensure that the maximum welfare is always achieved, and second, it is more effective in stabilising emissions. |
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