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Faculty of Economics

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Cavalcanti, T., Hasna, Z. and Santos, C.

Climate Change Mitigation Policies: Aggregate and Distributional Effects

CWPE2122

Abstract: We evaluate the aggregate and distributional effects of climate change mitigation policies using a multi-sector equilibrium model with intersectoral input–output linkages and worker heterogeneity calibrated to different countries. The introduction of carbon taxes leads to changes in relative prices and inputs reallocation, including labor. For the United States, reaching its original Paris Agreement pledge would imply at most a 0.6% drop in output. This impact is distributed asymmetrically across sectors and individuals. In the US, workers with a comparative advantage in dirty energy sectors who do not reallocate suffer a welfare loss 12 times higher than workers in non-dirty sectors, but constitute less than 1% of the labor force.

Keywords: Climate Change, carbon taxes, worker heterogeneity, labor reallocation

JEL Codes: E13 H23 J24

Author links: Tiago Cavalcanti  

PDF: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2122.pdf

EPRG Paper Link: 2104

Open Access Link: https://doi.org/10.17863/CAM.70011