First-and second-best allocations under economic and environmental uncertainty

Angelopoulos, K. , Economides, G. and Philippopoulos, A. (2013) First-and second-best allocations under economic and environmental uncertainty. International Tax and Public Finance, 20(3), pp. 360-380. (doi: 10.1007/s10797-012-9234-z)

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This paper uses a micro-founded DSGE model to compare second-best optimal environmental policy, and the resulting Ramsey allocation, to first-best allocation. The focus is on the source and size of uncertainty, and how this affects optimal choices and the comparison between second- and first-best. While higher economic volatility is bad for social welfare in all cases studied, the welfare effects of higher environmental volatility depend on its size and the effectiveness of public abatement policy. The Ramsey environmental tax is pro-cyclical when there is an economic shock, while it is counter-cyclical when there is an environmental shock.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Philippopoulos, Prof Apostolis and Angelopoulos, Professor Konstantinos
Authors: Angelopoulos, K., Economides, G., and Philippopoulos, A.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:International Tax and Public Finance
Published Online:17 May 2012

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