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A Real-Business-Cycle model with pollution and environmental taxation: the case of Bulgaria

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  • Vasilev, Aleksandar

Abstract

We introduce an environmental dimension into a real-business-cycle model augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of utility-enhancing environmental quality, and the mechanics of environmental ("carbon") tax on polluting production, as well as the effect of government spending on pollution abatement over the cycle. In particular, a positive shock to pollution emission in the model works like a positive technological shock, but its effect is quantitatively very small. Allowing for pollution as a by-product of production improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework, e.g., Vasilev (2009).

Suggested Citation

  • Vasilev, Aleksandar, 2018. "A Real-Business-Cycle model with pollution and environmental taxation: the case of Bulgaria," EconStor Preprints 175648, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:175648
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    References listed on IDEAS

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    1. Vasilev, Aleksandar, 2015. "Welfare gains from the adoption of proportional taxation in a general-equilibrium model with a grey economy: the case of Bulgaria's 2008 flat tax reform," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 48(2), pages 169-185.
    2. Aleksandar Vasilev, 2017. "VAT Evasion in Bulgaria: A General-Equilibrium Approach," Review of Economics and Institutions, Università di Perugia, vol. 8(2).
    3. Fischer, Carolyn & Springborn, Michael, 2011. "Emissions targets and the real business cycle: Intensity targets versus caps or taxes," Journal of Environmental Economics and Management, Elsevier, vol. 62(3), pages 352-366.
    4. Konstantinos Angelopoulos & George Economides & Apostolis Philippopoulos, 2013. "First-and second-best allocations under economic and environmental uncertainty," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 360-380, June.
    5. Vasilev, Aleksandar, 2017. "Business Cycle Accounting: Bulgaria after the introduction of the currency board arrangement (1999-2014)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 14(2), pages 197-219.
    6. Carolyn Fischer & Garth Heutel, 2013. "Environmental Macroeconomics: Environmental Policy, Business Cycles, and Directed Technical Change," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 197-210, June.
    7. Vasilev, Aleksandar, 2015. "The welfare effect of flat income tax reform: the case of Bulgaria," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 205-220.
    8. Vasilev, Aleksandar, 2020. "Search and matching frictions and business cycle fluctuations in Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 19(3), pages 319-340.
    9. Garth Heutel, 2012. "How Should Environmental Policy Respond to Business Cycles? Optimal Policy under Persistent Productivity Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 244-264, April.
    10. Aleksandar Vasilev, 2018. "Optimal Fiscal Policy in the Presence of VAT Evasion: The Case of Bulgaria," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(4), pages 399-414, September.
    11. Annicchiarico, Barbara & Di Dio, Fabio, 2015. "Environmental policy and macroeconomic dynamics in a new Keynesian model," Journal of Environmental Economics and Management, Elsevier, vol. 69(C), pages 1-21.
    12. Dissou, Yazid & Karnizova, Lilia, 2016. "Emissions cap or emissions tax? A multi-sector business cycle analysis," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 169-188.
    13. Garth Heutel, 2012. "How Should Environmental Policy Respond to Business Cycles? Optimal Policy under Persistent Productivity Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 244-264, April.
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    1. Vasilev, Aleksandar, 2018. "Optimal fiscal policy with environmental tax and abatement spending in a model with pollution and utility-enhancing environmental quality: the case of Bulgaria," EconStor Preprints 175661, ZBW - Leibniz Information Centre for Economics.
    2. Aleksandar Vasilev, 2019. "Optimal fiscal policy with environmental tax and pollution abatement spending in a model with utility-enhancing environmental quality: lessons from Bulgaria," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 12(1), pages 24-35, January.
    3. Juhro, Solikin M. & Iyke, Bernard Njindan & Narayan, Paresh Kumar, 2024. "Capital flow dynamics and the synchronization of financial cycles and business cycles in emerging market economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).
    4. Vasilev, Aleksandar, 2021. "A Real-Business-Cycle model with robots: Lessons for Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 7(2), pages 7-15.
    5. Arnita Rishanty & Sekar Utami Setiastuti & Nur M. Adhi Purwanto, 2021. "The Growth Agenda And Financing Green Projects: An Environmental Dsge Approach," Working Papers WP/13/2021, Bank Indonesia.
    6. Maria Teresa Punzi, 2018. "Role of Bank Lending in Financing Green Projects: A Dynamic Stochastic General Equilibrium Approach," Working Papers id:12938, eSocialSciences.
    7. Aleksandar Vasilev, 2022. "What is environmental sustainability? Optimal environmental policy as a targeting regime," Economics Bulletin, AccessEcon, vol. 42(3), pages 1527-1535.

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    More about this item

    Keywords

    Business cycles; pollution; environmental quality; environmental tax; abatement spending;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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