Modelling the Economy-Wide Effects of Unilateral Co2 Pricing Under Different Revenue Recycling Schemes in Austria - Part a: Identifying Structural Model Uncertainties

33 Pages Posted: 27 Jul 2023

See all articles by Mathias Kirchner

Mathias Kirchner

affiliation not provided to SSRN

Laura Wallenko

University of Graz

Mark Sommer

Austrian Institute of Economic Research (WIFO)

Gabriel Bachner

University of Graz

Claudia Kettner

affiliation not provided to SSRN

Thomas Leoni

University of Applied Sciences Wiener Neustadt

Jakob Mayer

University of Graz

Nathalie Spittler

affiliation not provided to SSRN

Judith Köberl

affiliation not provided to SSRN

Veronika Kulmer

University of Graz

Abstract

Macroeconomic modelling is widely applied to assess the effects of carbon pricing. However, there remains substantial uncertainty on these effects within and especially across different modelling approaches. This paper, Part A, identifies model structure uncertainties and impact chains, i.e. causal relationships inferred in the models, between a Neoclassical model, WEGDYN_AT, and a New Keynesian model, DYNK. Part B (Kettner et al., 2023) complements this analysis by identifying policy recommendations highlighting dividends and distributional effects. Our analysis shows that model impact chains of carbon pricing policies can differ substantially and structurally between macroeconomic models, especially regarding price channels (i.e., prices of labor, capital, producers, goods and services), income channels (especially assumptions on public budgets and capital income) and consumption channels (especially household reaction to income changes). Differences in aggregate results remain small, but we find significant differences in magnitude and direction of changes for consumer price index, income and welfare. Despite these differences, carbon pricing remains an important instrument to help mitigate carbon emissions in all models and scenarios. Transparent documentation of model impact chains can support the identification of robust policy recommendations. Model structure uncertainty analyses should be extended to include more modelling approaches to carbon pricing.

Keywords: model comparison, macroeconomics, carbon pricing, structural uncertainty

Suggested Citation

Kirchner, Mathias and Wallenko, Laura and Sommer, Mark and Bachner, Gabriel and Kettner, Claudia and Leoni, Thomas and Mayer, Jakob and Spittler, Nathalie and Köberl, Judith and Kulmer, Veronika, Modelling the Economy-Wide Effects of Unilateral Co2 Pricing Under Different Revenue Recycling Schemes in Austria - Part a: Identifying Structural Model Uncertainties. Available at SSRN: https://ssrn.com/abstract=4523081 or http://dx.doi.org/10.2139/ssrn.4523081

Mathias Kirchner (Contact Author)

affiliation not provided to SSRN ( email )

No Address Available

Laura Wallenko

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

Mark Sommer

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Gabriel Bachner

University of Graz ( email )

Brandhofgasse 5
A-8010 Graz, 8010
Austria

Claudia Kettner

affiliation not provided to SSRN ( email )

No Address Available

Thomas Leoni

University of Applied Sciences Wiener Neustadt ( email )

Wiener Neustadt
Austria

Jakob Mayer

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

Nathalie Spittler

affiliation not provided to SSRN ( email )

No Address Available

Judith Köberl

affiliation not provided to SSRN ( email )

No Address Available

Veronika Kulmer

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

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