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Kato, Mika; Mittnik, Stefan; Samaan, Daniel and Semmler, Willi (15. November 2013): Employment and Output Effects of Climate Policies. Department of Statistics: Technical Reports, No.149 [PDF, 1MB]

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Recently academic work has been put forward that argues for a great urgency to implement effective climate policies to stop global warming. Concrete policy proposals for reducing CO2 emissions have been developed by the IPCC. One of the major instruments proposed is a carbon tax. A main obstacle for its implementation, however, are concerns about the short-term effects on employment and output. In order to miti-gate possible negative effects of enviromental taxes on output and employment, several European countries have introduced so-called environmental tax reforms (ETR) which are designed in a budget neutral manner: Revenues from the tax can be used to reduce existing distortionary taxes or to subsidize less polluting activities. We apply this idea to a carbon tax scheme by performing a vector autoregression (VAR) with output and employment data of nine industrialized countries. We impose a simultaneous policy shock on the economy whereby a carbon tax is levied on high-carbon intensive industries and the resulting tax revenue is redistributed to low-carbon intensive industries. Impulse response analysis shows that such a policy allows for net gains in terms of output and employment.

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