Climate Policy and Optimal Public Debt

Arbeitspapier

This paper analyzes the optimal level of public debt when taxes are used not only for funding public expenditures but also for correcting externalities from climate change. Taking into account externalities implies that the optimal policy deviates from tax smoothing. Provided cumulative marginal damages are larger from today’s than from tomorrow’s emissions, the internalization of externalities decreases [increases] optimal debt if tax rates are on the increasing [decreasing] side of the Laffer curve. The reversed holds if the cumulative marginal damages increase over time. Allowing for endogenous adaptation investments reduces the deviation from tax-smoothing, but nevertheless increases optimal debt.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 8865

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies ; National Debt; Debt Management; Sovereign Debt ; Climate; Natural Disasters and Their Management; Global Warming ; Environmental Economics: Government Policy
• Subject: environmental externality ; public debt ; tax smoothing

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kellner, Maximilian ; Runkel, Marco
• Event: Veröffentlichung
• (who): Center for Economic Studies and Ifo Institute (CESifo)
• (where): Munich
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/232462