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Capital Malleability and the Macroeconomic Costs of Climate Policy

47 Pages Posted: 13 Mar 2010  

Elisa Lanzi

Fondazione ENI Enrico Mattei (FEEM)

Ian Sue Wing

Boston University

Date Written: March 11, 2010

Abstract

This paper argues for introducing the role of capital malleability into the analysis of environmental policies. The issue is explored by means of a theoretical model, a numerical analysis and a computable general equilibrium (CGE) model. Considering the three approaches together is fundamental in obtaining theory-compatible policy-relevant results. The model outcomes reveal differences between results under separate assumptions regarding the malleability of capital. When capital is imperfectly malleable a carbon policy is less effective than under the assumption of perfect malleability of capital. Therefore, it is important that, especially for the analysis of short-term environmental regulations, the issue of capital malleability is taken into consideration.

Keywords: General Equilibrium, CGE Models, Climate Change Policy

JEL Classification: C68, D58, H22, Q43

Suggested Citation

Lanzi, Elisa and Sue Wing, Ian, Capital Malleability and the Macroeconomic Costs of Climate Policy (March 11, 2010). FEEM Working Paper No. 19.2010. Available at SSRN: https://ssrn.com/abstract=1568764 or http://dx.doi.org/10.2139/ssrn.1568764

Elisa Lanzi (Contact Author)

Fondazione ENI Enrico Mattei (FEEM) ( email )

Campo S. M. Formosa, Castello 5252
Venezia, 30122
Italy
+39 0412711470 (Phone)

HOME PAGE: http://www.feem.it

Ian Sue Wing

Boston University ( email )

United States

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