Evaluation and comparison of energy tax, resource tax and air pollution tax: an environmental-DSGE model

Abstract

How governments choose green fiscal policies to achieve green transition is an urgent issue to be solved. In this context, an environmental-dynamic stochastic general equilibrium model is developed to analyze and compare the macroeconomic effects of fossil energy tax, natural resource tax and air pollution tax. The research shows that the supply-side policy, the natural resource tax, has a stronger impact on the economy than the other two demand-side policies, the fossil energy tax and air pollution tax. More importantly, supply-side policies are more effective than demand-side policies in two aspects: (1) all three policies can make up for the negative impact of tight fiscal policies on the economy, with supply-side policy offsetting the negative impact to a greater extent than demand-side policy; (2) all three policies can act as automatic stabilisers of the economy, with supply-side policy being more effective than demand-side policy in smoothing economic fluctuations.

Keywords:

• fossil energy tax
• natural resource tax
• air pollution tax
• environmental-DSGE model
• policy evaluation and comparison

Disclosure statement

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this article.

Supplemental data

Supplemental data for this article can be accessed online at https://doi.org/10.1080/09640568.2023.2244670

Additional information

Funding

The authors gratefully acknowledge the financial support from the National Natural Science Foundation of China (No. 72304063; No. 72204041); Humanities and Social Sciences Youth Foundation of Ministry of Education of China (No. 22YJC790143; No. 22YJC790035); Natural Science Foundation of Liaoning Province (No. 2023-BS-057). The authors appreciate the various comments from colleagues in the ZEW, Northeastern University and LLIG at Beihang University.