IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-04942569.html
   My bibliography  Save this paper

Optimal Climate Policy, Distortionary Taxation, and Public Debt

Author

Listed:
  • Rym Aloui

    (UL2 UFR SEG - Université Lumière - Lyon 2 - UFR de Sciences économiques et de gestion - UL2 - Université Lumière - Lyon 2, GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - EM - EMLyon Business School - CNRS - Centre National de la Recherche Scientifique)

  • Hafedh Bouakez

    (HEC Montréal - HEC Montréal)

Abstract

We derive the (second-best) optimal carbon tax in a polluted economy with preexisting tax distortions and in which labor and capital income taxes adjust endogenously to changes in the ratio of public debt to GDP via pre-established fiscal rules. Relative to the no-climate-policy scenario, the welfare-maximizing carbon tax lowers the debt-to-GDP ratio as well as labor and capital income taxes, while raising GDP and consumption. The strength of these effects depends on the aggressiveness of the tax rules. The less aggressive they are, the larger the decline in the debt-to-GDP ratio, but the smaller the optimal carbon tax and the resulting increase in GDP, consumption, and welfare. We also show that, for given fiscal rules, the optimal carbon tax and welfare gain are smaller the larger preexisting tax distortions.

Suggested Citation

  • Rym Aloui & Hafedh Bouakez, 2025. "Optimal Climate Policy, Distortionary Taxation, and Public Debt," Working Papers hal-04942569, HAL.
    • Handle: RePEc:hal:wpaper:hal-04942569
    Note: View the original document on HAL open archive server: https://hal.science/hal-04942569v1
    as

    Download full text from publisher

    File URL: https://hal.science/hal-04942569v1/document
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    JEL Classification: E32 E62 F41 H54; JEL Classification: E32; E62; F41; H54;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-04942569. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.