Taxing Fossil Fuels under Speculative Storage

Author/Editor:

Semih Tumen ; Deren Unalmis ; Ibrahim Unalmis ; Filiz D Unsal

Publication Date:

December 18, 2014

Electronic Access:

Free Full Text. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper investigates the mechanisms through which environmental taxes on fossil fuel usage can affect the main macroeconomic variables in the short-run. We concentrate on a particular mechanism: speculative storage. The existence of forward-looking speculators in the model improves the effectiveness of tax policies in reducing fossil fuel usage. Improved policy effectiveness, however, is costly: it drives inflation and interest rates up, while impeding output. Based on this tradeoff, we seek an answer to the question how monetary policy should interact with environmental tax policies in our DSGE model of fossil fuel storage.

Series:

Working Paper No. 14/228

Subject:

English

Publication Date:

December 18, 2014

ISBN/ISSN:

9781475573688/1018-5941

Stock No:

WPIEA2014228

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

36

Please address any questions about this title to publications@imf.org