Energy taxes and endogenous technological change

Published

Journal Article

This paper studies the effects of a tax on energy use in a growth model where market structure is endogenous and jointly determined with the rate of technological change. Because this economy does not exhibit the scale effect (a positive relation between TFP growth and aggregate R&D), the tax has no effect on the steady-state growth rate. It has, however, important transitional effects that give rise to surprising results. Specifically, under the plausible assumption that energy demand is inelastic, there may exist a hump-shaped relation between the energy tax and welfare. This shape stems from the fact that the reallocation of resources from energy production to manufacturing triggers a temporary acceleration of TFP growth that generates a √-shaped time profile of consumption. If endogenous technological change raises consumption sufficiently fast and by a sufficient amount in the long run, and households are sufficiently patient, the tax raises welfare despite the fact that-in line with standard intuition-it lowers consumption in the short run. © 2008 Elsevier Inc. All rights reserved.

Full Text

Duke Authors

Cited Authors

  • Peretto, PF

Published Date

  • May 1, 2009

Published In

Volume / Issue

  • 57 / 3

Start / End Page

  • 269 - 283

Electronic International Standard Serial Number (EISSN)

  • 1096-0449

International Standard Serial Number (ISSN)

  • 0095-0696

Digital Object Identifier (DOI)

  • 10.1016/j.jeem.2008.07.007

Citation Source

  • Scopus