<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>Policies that are introduced to mitigate adverse consequences of climate change involve economic costs. For some households, these costs will materialise in the form of an increase in prices of consumption goods, whereas for others they will materialise in the form of falling productivity and wages. Disentangling these two effects is important in the light of the design of funds that aim to support the households that are negatively affected by climate policy. In this article, we study the effect of carbon tax on welfare through changes of consumer prices and wages in a general equilibrium setting. In the first step, we review the literature on ‘top-down’ models, which are used to evaluate the macroeconomic cost of climate policy. We find that these models usually do not account for loss of productivity of workers who must change their sector due to climate policy. In the second step, we develop a theoretical, micro-founded, two-sector model that explicitly accounts for the loss of productivity of workers. The compensation of climate-change mitigation costs would require allocation of separate funds for the affected consumers and workers.</p>
</abstract>

Policies that are introduced to mitigate adverse consequences of climate change involve economic costs. For some households, these costs will materialise in the form of an increase in prices of consumption goods, whereas for others they will materialise in the form of falling productivity and wages. Disentangling these two effects is important in the light of the design of funds that aim to support the households that are negatively affected by climate policy. In this article, we study the effect of carbon tax on welfare through changes of consumer prices and wages in a general equilibrium setting. In the first step, we review the literature on ‘top-down’ models, which are used to evaluate the macroeconomic cost of climate policy. We find that these models usually do not account for loss of productivity of workers who must change their sector due to climate policy. In the second step, we develop a theoretical, micro-founded, two-sector model that explicitly accounts for the loss of productivity of workers. The compensation of climate-change mitigation costs would require allocation of separate funds for the affected consumers and workers.

Workers or Consumers: Who Pays for Low-Carbon Transition – Theoretical Analysis of Welfare Change in General Equilibrium Setting

Central European Economic Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Policies that are introduced to mitigate adverse consequences of climate change involve economic costs. For some households, these costs will materialise in...

Workers or Consumers: Who Pays for Low-Carbon Transition – Theoretical Analysis of Welfare Change in General Equilibrium Setting

Published Online: Aug 20, 2021

Page range: 231 - 245

DOI: https://doi.org/10.2478/ceej-2021-0017

Keywords
computable general equilibrium models, integrated assessment models, just transition, macroeconomic costs of transition, welfare compensation

© 2021 Jan Witajewski-Baltvilks et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Workers or Consumers: Who Pays for Low-Carbon Transition – Theoretical Analysis of Welfare Change in General Equilibrium Setting

Published Online: Aug 20, 2021

Page range: 231 - 245

DOI: https://doi.org/10.2478/ceej-2021-0017

Keywordscomputable general equilibrium models, integrated assessment models, just transition, macroeconomic costs of transition, welfare compensation

© 2021 Jan Witajewski-Baltvilks et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Keywords
computable general equilibrium models, integrated assessment models, just transition, macroeconomic costs of transition, welfare compensation