How should environmental policy respond to business cycles? Optimal policy under persistent productivity shocks☆
Highlights
► I study climate policy using a real business cycle model. ► Optimal climate policy is procyclical. ► An optimal emissions tax is procyclical, so is an optimal emissions quota.
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I would like to thank Don Fullerton, Bill Hogan, Stephen Holland, John Horowitz, Bidisha Lahiri, Billy Pizer, Rob Stavins, Dan Tortorice, Richard Zeckhauser, two anonymous referees, and various seminar participants for helpful comments, and the Kernan Brothers fellowship at the Harvard University Center for the Environment for funding.
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