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Green monetary and fiscal policies: The role of consumer preferences

Author

Listed:
  • Mohamed Tahar Benkhodja

    (ESSCA - Ecole Supérieure des Sciences Commerciales d'Angers)

  • Xiaofei Ma

    (ESSCA - Ecole Supérieure des Sciences Commerciales d'Angers)

  • Tovonony Razafindrabe

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

We establish a two-sector model to simulate the potential effects of green fiscal poli- cies and unconventional green monetary policy on the economy during a recovery or in case of a stimulus policy. We find that instruments such as a carbon tax, an implicit tax on brown loans, and a subsidy for the purchase of green goods are all beneficial to the green sector, in contrast to green quantitative easing. A carbon tax imposed directly on firms in the brown sector is the most effective tool to reduce pollution. More importantly, the marginal effects of green instruments on the economy depend on consumer preferences. Namely, the marginal effects are the most prominent when consumers start to purchase more green goods as an increasing part of their consumption basket. Furthermore, the effects of those green policies are more effective when the elasticity of substitution between green and brown goods increases. This finding suggests that raising consumers' awareness and ability to consume green goods reinforce the effectiveness of public policies designed for low-carbon transition of the economy.

Suggested Citation

  • Mohamed Tahar Benkhodja & Xiaofei Ma & Tovonony Razafindrabe, 2023. "Green monetary and fiscal policies: The role of consumer preferences," Post-Print hal-04126564, HAL.
    • Handle: RePEc:hal:journl:hal-04126564
    DOI: 10.1016/j.reseneeco.2023.101370
    Note: View the original document on HAL open archive server: https://hal.science/hal-04126564
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    Citations

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    Cited by:

    1. Yao, Shun & Li, Tongxin & Li, Ying, 2023. "Promoting sustainable fossil fuels resources in BRICS countries: Evaluating green policies and driving renewable energy development," Resources Policy, Elsevier, vol. 85(PA).
    2. Wang, Han & Chen, Xiaru & Li, Liping & Xu, Jiaqi, 2024. "Ferrous metal extraction and its impact on sustainable urban development," Resources Policy, Elsevier, vol. 90(C).
    3. Yanyan Zheng & Jin Zhang & Mengyuan Wang & Peng Liu & Tong Shu, 2023. "Low-Carbon Manufacturing or Not? Equilibrium Decisions for Capital-Constrained News Vendors with Subsidy and Carbon Tax," Sustainability, MDPI, vol. 15(15), pages 1-23, July.
    4. Maria Teresa Punzi, 2024. "The Role of Macroprudential Policies under Carbon Pricing," Working and Discussion Papers WP 4/2024, Research Department, National Bank of Slovakia.

    More about this item

    Keywords

    Consumers’ preferences; E-DSGE; Economic recovery; Elasticity of substitution; Environmental policies; Stimulus policy;
    All these keywords.

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