Optimal carbon tax rates in a dynamic stochastic general equilibrium model with a supply chain

Ying Tung Chan and Hong Zhao

Economic Modelling, 2023, vol. 119, issue C

Abstract: This study investigates the role of the production supply chain in the choice of climate policies. We construct an environmental dynamic stochastic general equilibrium (E-DSGE) model that features multiple stages of production and different types of productivity shocks. Existing E-DSGE models for climate policy evaluation assume a single production stage. We find that the optimal carbon tax rates in all production stages are procyclical to aggregate supply shocks and countercyclical to aggregate demand shocks; however, if the shock arises from a particular production stage, the implied optimal carbon tax rates vary across stages and depend on the nature of the shocks.

Keywords: Supply chain; E-DSGE model; Carbon tax rate; Ramsey problem (search for similar items in EconPapers)
JEL-codes: E32 Q52 Q58 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003467

DOI: 10.1016/j.econmod.2022.106109

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