03205cam a22003497 4500001000700000003000500007005001700012008004100029100002200070245014200092260006600234490004200300500001700342520146300359530006101822538007201883538003601955690006201991690010102053690013102154690013402285690006702419690005502486690007202541700001902613700001802632700002102650710004202671830007702713856003802790856002702828w17348NBER20140731124944.0140731s2011 mau||||fs|||| 000 0 eng d1 aGolosov, Mikhail.10aOptimal Taxes on Fossil Fuel in General Equilibriumh[electronic resource] /cMikhail Golosov, John Hassler, Per Krusell, Aleh Tsyvinski. aCambridge, Mass.bNational Bureau of Economic Researchc2011.1 aNBER working paper seriesvno. w17348 aAugust 2011.3 aWe analyze a dynamic stochastic general-equilibrium (DSGE) model with an externality through climate change from using fossil energy. A central result of our paper is an analytical derivation of a simple formula for the marginal externality damage of emissions. This formula, which holds under quite plausible assumptions, reveals that the damage is proportional to current GDP, with the proportion depending only on three factors: (i) discounting, (ii) the expected damage elasticity (how many percent of the output flow is lost from an extra unit of carbon in the atmosphere), and (iii) the structure of carbon depreciation in the atmosphere. Very importantly, future values of output, consumption, and the atmospheric CO2 concentration, as well as the paths of technology and population, and so on, all disappear from the formula. The optimal tax, using a standard Pigou argument, is then equal to this marginal externality. The simplicity of the formula allows the optimal tax to be easily parameterized and computed. Based on parameter estimates that rely on updated natural-science studies, we find that the optimal tax should be a bit higher than the median, or most well-known, estimates in the literature. We also show how the optimal taxes depend on the expectations and the possible resolution of the uncertainty regarding future damages. Finally, we compute the optimal and market paths for the use of energy and the corresponding climate change. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aE13 - Neoclassical2Journal of Economic Literature class. 7aE17 - Forecasting and Simulation: Models and Applications2Journal of Economic Literature class. 7aE6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook2Journal of Economic Literature class. 7aH23 - Externalities • Redistributive Effects • Environmental Taxes and Subsidies2Journal of Economic Literature class. 7aQ28 - Government Policy2Journal of Economic Literature class. 7aQ4 - Energy2Journal of Economic Literature class. 7aQ5 - Environmental Economics2Journal of Economic Literature class.1 aHassler, John.1 aKrusell, Per.1 aTsyvinski, Aleh.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w17348.4 uhttp://www.nber.org/papers/w17348 uurn:doi:10.3386/w17348