Location: 368A Heady Hall
Description: Lint Barrage (University of Maryland, College Park)
"Climate Change Adaptation vs. Mitigation: A Fiscal Perspective"
Abstract: This study explores the implications of distortionary taxes for the tradeoff between climate change adaptation and mitigation. Public adaptation measures (e.g., seawalls) require government revenues. In contrast, mitigation through carbon taxes raises revenues, but interacts with the welfare costs of other taxes. This paper thus theoretically characterizes and empirically quantifies this tradeoff in a dynamic general equilibrium integrated assessment climate-economy model with distortionary Ramsey taxation. First, I find that public investments in adaptive capacity to reduce direct utility impacts of climate change (e.g., damages to national parks) are distorted at the optimum. The consumption of climate benefits is effectively taxed like other consumption goods. Second, public adaptation to reduce production impacts of climate change (e.g., damages to infrastructure) should be fully provided, even when they are financed through distortionary taxes. Third, the central quantitative finding is that the welfare costs of limiting climate policy to adaptation (i.e., failure to enact a carbon price) may be up to twice as high when the distortionary costs of adaptive expenditures are taken into account.
Contact Person: Quinn Weninger