Technological Change, Energy, Environment and Economic Growth in Japan

Abstract

A considerable amount of research has shown that a carbon tax combined with research subsidies may be regarded as optimal policy for encouraging the spread of low-carbon technologies for the benefit of society. The paper exploits the macroeconomic approach of endogenous growth models with technological change in order to make a comparative assessment of the impact of such policy measures on economic growth in the US and Japan in the medium and long term. Our estimates reveal several important differences between Japanese and US energy firms: lower elasticity of the innovation production function in R&D expenditure, lower probability of radical innovation, and predominance of dirty technologies in Japan. This may explain our quantitative findings of stronger reliance on carbon tax in Japan as opposed to research subsidies in the US.