Evaluation and comparison of energy tax, resource tax and air pollution tax: an environmental-DSGE model

Abstract

How governments choose green fiscal policies to achieve green transition is an urgent issue to be solved. In this context, an environmental-dynamic stochastic general equilibrium model is developed to analyze and compare the macroeconomic effects of fossil energy tax, natural resource tax and air pollution tax. The research shows that the supply-side policy, the natural resource tax, has a stronger impact on the economy than the other two demand-side policies, the fossil energy tax and air pollution tax. More importantly, supply-side policies are more effective than demand-side policies in two aspects: (1) all three policies can make up for the negative impact of tight fiscal policies on the economy, with supply-side policy offsetting the negative impact to a greater extent than demand-side policy; (2) all three policies can act as automatic stabilisers of the economy, with supply-side policy being more effective than demand-side policy in smoothing economic fluctuations.