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Democratic Climate Policies with Overlapping Generations

By: Material type: TextTextPublication details: Environmental and Resource Economics; 2024Description: 1249-1273ISSN:
  • 1573-1502
Subject(s): Online resources: Summary: An extensive climate policy literature provides various recommendations for mitigating climate change, but these recommendations are not supported democratically, since the models employed consider either infinitely-lived individuals or normative social objectives (or both). In contrast, the present paper provides policy recommendations capable of incorporating democratic processes. I develop an overlapping generation model with political process micro-foundations and show how democratic climate policies are interconnected with other democratic policies. Time inconsistent social objectives combined with commitment issues lead to an inefficient tax on capital accumulation and a climate policy below the efficient level; while suppressing the tax on capital accumulation generates a climate policy even further below the efficient level. I derive a novel politico-economic Keynes-Ramsey rule for the market interest rate, which is useful for calculating the climate policy level. I show that individual pure time preference, individual altruism toward descendants, and young generation political power are key determinants of democratic climate policy ambition.
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Article Index Article Index Dr VKRV Rao Library Vol. 87, No. 5 Not for loan AI546

An extensive climate policy literature provides various recommendations for mitigating climate change, but these recommendations are not supported democratically, since the models employed consider either infinitely-lived individuals or normative social objectives (or both). In contrast, the present paper provides policy recommendations capable of incorporating democratic processes. I develop an overlapping generation model with political process micro-foundations and show how democratic climate policies are interconnected with other democratic policies. Time inconsistent social objectives combined with commitment issues lead to an inefficient tax on capital accumulation and a climate policy below the efficient level; while suppressing the tax on capital accumulation generates a climate policy even further below the efficient level. I derive a novel politico-economic Keynes-Ramsey rule for the market interest rate, which is useful for calculating the climate policy level. I show that individual pure time preference, individual altruism toward descendants, and young generation political power are key determinants of democratic climate policy ambition.

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