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Structural and climatic change

Engström, G. (2016). Structural Change and Economic Dynamics 37:62–74. http://dx.doi.org/10.1016/j.strueco.2015.11.007

Abstract:

This paper studies a multi-sector growth model where emissions from fossil fuels give riseto a climate externality. Each sector is impacted heterogeneously by climate change which together with technological differences induces factor reallocation over time. By solving the social planners problem and characterizing the competitive equilibrium this paper derivesa simple formula for optimal taxes and sectoral factor allocation which shows how the elasticity of substitution between sectors impact on taxes through differences in technology as well as sensitivity to climate change. I also present separate numerical simulations for how optimal policies differ depending on sectoral composition, exemplified by the U.Sand Indian economy. The results show how climate change, technological development and the elasticity of substitution can impact on optimal fossil fuel consumption over time.

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Keywords: Structural change, climate change, economic growth

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