Carbon tax could help monetary policy – ECB paper
But tax will only improve welfare if alternatives to carbon-based power are available, say researchers
A carbon tax should be used to “cool down” economies during boom periods, and stimulate them during recessions, according to a new paper from the European Central Bank.
In Green Asset Pricing, Ghassane Benmir, Ivan Jaccard and Gauthier Vermande argue that an optimal carbon tax would be linked to the price of CO². In order to gauge its price, the authors create a model using “higher-order perturbation methods”.
They find that an optimal carbon price is pro-cyclical and can be used during both
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