The Economic Consequences of Effective Carbon Taxes

In the new CAMP working paper 01/2023, Kapfhammer studies the economic consequences of carbon taxes at the macroeconomic and sectoral level. He proposes a novel monthly measure of effective carbon tax rates, which, in contrast to the measures used by the existing literature, accounts for the time-varying emission coverage of taxes that are both explicitly and implicitly levied on greenhouse gas-emitting goods. Employing the new measure for four Nordic countries, he finds that effective carbon taxes reduce emissions as expected but also decrease macroeconomic and sectoral activity – though there is some heterogeneity in the effects within and across the Nordic countries.