Green fiscal policy in high debt and ageing society: low(er) growth and distributional effects matter.

01 November 2021 → 31 October 2025
Research Foundation - Flanders (FWO)
Research disciplines
  • Social sciences
    • Macroeconomic policy, macroeconomic aspects of public finance and general outlook
Green fiscal policy OLG ecological macroeconomics
Project description

In order to combat climate change, economists propose carbon taxation to reduce emissions. Carbon taxes are deemed regressive and increase inequality. Current literature is divided on the ways to combat this adverse effect. Literature on carbon taxation and double dividends has several flaws. Depending on the model, labour market imperfections, heterogeneity and demographic change are missing. These elements are important drivers of inter- and intragenerational inequality. The project tackles these gaps by including them in an extensive general equilibrium OLG model with a rich fiscal block, demographics and several energy sources. This model can explain per capita growth, inequality and emissions. As countries differ in their energy transition it becomes important to correctly model this emission channel. Numerical models require external validation. The project uses a backfitting exercise to validate key macroeconomic variables and emissions. simulations of the model serve to asses optimal policy in terms of emissions reductions, inequality and measures of welfare.