TY - UNPB
T1 - Modelling the Economy-Wide Effects of Unilateral Co2 Pricing Under Different Revenue Recycling Schemes in Austria
T2 - Identifying Structural Model Uncertainties
AU - Kirchner, Mathias
AU - Wallenko, Laura
AU - Sommer, Mark
AU - Bachner, Gabriel
AU - Kettner, Claudia
AU - Leoni, Thomas
AU - Mayer, Jakob
AU - Spittler, Nathalie
AU - Köberl, Judith
AU - Kulmer, Veronika
PY - 2023
Y1 - 2023
N2 - Macroeconomic modelling is widely applied to assess the effects of carbon pricing. However, there remains substantial uncertainty on these effects within and especially across different modelling approaches. This paper identifies model structure uncertainties between a Neoclassical computable general equilibrium model (WEGDYN_AT) and a New Keynesian model (DYNK). Specifically, we reveal and isolate model impact chains, i.e. causal relationships within the models, that drive macroeconomic results. Our companion paper (Kettner et al., 2024) complements this analysis by identifying dividends and distributional effects from carbon pricing and deriving policy recommendations. Our analysis shows that model impact chains of carbon pricing and revenue recycling options can differ substantially and structurally between macroeconomic models, especially regarding the labor, capital, and goods & services market as well as the public budget. New Keynesian models likely show stronger reactions to external price shocks (like carbon pricing), but smoother effects in the labor market, with opposite effects for Neoclassical models. Assumptions regarding consumption behavior, such as the type of consumption function and respective nesting and elasticities, can significantly influence the effect of tax recycling options addressing household income. Further, we find that similarities in aggregate results can conceal differences in impact chains. Hence, the transparent description and documentation of model impact chains can support a better understanding of the potential bandwidth of macroeconomic effects of carbon pricing, including the identification of more robust outcomes, and thus aid policy support. Model structure uncertainty analyses should therefore be more widely applied, covering further approaches to modelling the impacts of carbon pricing (e.g. agent-based models, system dynamics).
AB - Macroeconomic modelling is widely applied to assess the effects of carbon pricing. However, there remains substantial uncertainty on these effects within and especially across different modelling approaches. This paper identifies model structure uncertainties between a Neoclassical computable general equilibrium model (WEGDYN_AT) and a New Keynesian model (DYNK). Specifically, we reveal and isolate model impact chains, i.e. causal relationships within the models, that drive macroeconomic results. Our companion paper (Kettner et al., 2024) complements this analysis by identifying dividends and distributional effects from carbon pricing and deriving policy recommendations. Our analysis shows that model impact chains of carbon pricing and revenue recycling options can differ substantially and structurally between macroeconomic models, especially regarding the labor, capital, and goods & services market as well as the public budget. New Keynesian models likely show stronger reactions to external price shocks (like carbon pricing), but smoother effects in the labor market, with opposite effects for Neoclassical models. Assumptions regarding consumption behavior, such as the type of consumption function and respective nesting and elasticities, can significantly influence the effect of tax recycling options addressing household income. Further, we find that similarities in aggregate results can conceal differences in impact chains. Hence, the transparent description and documentation of model impact chains can support a better understanding of the potential bandwidth of macroeconomic effects of carbon pricing, including the identification of more robust outcomes, and thus aid policy support. Model structure uncertainty analyses should therefore be more widely applied, covering further approaches to modelling the impacts of carbon pricing (e.g. agent-based models, system dynamics).
M3 - Working paper
T3 - Available at SSRN 4523081
BT - Modelling the Economy-Wide Effects of Unilateral Co2 Pricing Under Different Revenue Recycling Schemes in Austria
ER -