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A Replication of "The Macroeconomic Impact of Europe's Carbon Taxes" by Metcalf and Stock (2023)

Author

Listed:
  • Ash, Thomas
  • Nikolaishvili, Giorgi

Abstract

Metcalf and Stock (2023) find that an increase in carbon tax has a weakly positive effect on output and employment, along with a negative effect on C02 emissions over a 6-year horizon. The paper identifies a carbon tax shock and uses it to quantify the effect of a permanent unexpected increase in the carbon tax rate. The effect of this increase is obtained using a policy counterfactual exercise based on dynamic effects estimated using panel local projections. We use the authors' own Stata replication package to reproduce the main results of the paper and carry out additional robustness tests. We also conduct these empirical analyses using popular open-source econometric libraries in R. We compare the original permanent carbon tax increase policy counterfactual impulse responses to standard one-time carbon tax shock impulse responses. The justification for this robustness test is that carbon tax rate changes are persistent, so that a transitory shock effectively mimics a permanent shock. We find that (1) the authors' replication package successfully reproduces the results of the paper; (2) alternative local projection specifications and policy counterfactuals largely exhibit the same qualitative properties as the main results of the paper.

Suggested Citation

  • Ash, Thomas & Nikolaishvili, Giorgi, 2024. "A Replication of "The Macroeconomic Impact of Europe's Carbon Taxes" by Metcalf and Stock (2023)," I4R Discussion Paper Series 167, The Institute for Replication (I4R).
  • Handle: RePEc:zbw:i4rdps:167
    as

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    References listed on IDEAS

    as
    1. Gilbert E. Metcalf & James H. Stock, 2023. "The Macroeconomic Impact of Europe's Carbon Taxes," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(3), pages 265-286, July.
    2. Òscar Jordà, 2023. "Local Projections for Applied Economics," Working Paper Series 2023-16, Federal Reserve Bank of San Francisco.
    3. Sims, Christopher A. & Zha, Tao, 2006. "Does Monetary Policy Generate Recessions?," Macroeconomic Dynamics, Cambridge University Press, vol. 10(2), pages 231-272, April.
    4. Croissant, Yves & Millo, Giovanni, 2008. "Panel Data Econometrics in R: The plm Package," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 27(i02).
    5. José Luis Montiel Olea & Mikkel Plagborg‐Møller, 2021. "Local Projection Inference Is Simpler and More Robust Than You Think," Econometrica, Econometric Society, vol. 89(4), pages 1789-1823, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    carbon tax; policy counterfactual; panel local projection;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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