Frontiers of Climate Change Economics

The economics of climate change is an active field of research. The contributions to a Special Issue are put in context of the literature, and it is suggested that second-best issues such as carbon leakage and the Green Paradox need to be complemented with a political economy analysis of why certain instruments are politically infeasible and with intra- and intergenerational analyses of the impact of climate policy. A case is also made for more empirical work on the gradual and catastrophic damages of global warming

Fiscal policy multipliers: The role of monopolistic competition, scale economies, and intertemporal substitution in labour supply

A dynamic macroeconomic model of monopolistic competition is developed for the closed economy. Forward looking consumers demand differentiated goods, supply labour, and save part of their income in the form of shares. Producers manufacture the differentiated goods by using labour and capital. We study the short-run, transition, and long-run effects of fiscal policy. Comparisons with the New Classical case of perfect competition are made. Simple expressions far multipliers are derived. The sensitivity of the multipliers for diversity preference and Ethier productivity effects, intratemporal and intertemporal substitution effects, and markup effects under free and restricted entry are also studied

The investment tax credit under monopolistic competition

This pager develops a dynamic model of monopolistic competition with finite lives. It investigates the welfare properties of an investment tax credit (ITC) for both finite and infinite lives. For infinite lives, it shows that, lacking lump-sum taxes, an ITC suffices to attain a second-best solution. For finite lives, the paper considers the intergenerational welfare distribution effects of an ITC. In the absence of debt policy, the investment tax credit benefits future generations but may harm most of the existing generations. Using debt financing, the policy maker can redistribute the gains in a completely egalitarian fashion

Public investment and intergenerational distribution

We study the effects of public investment in a dynamic overlapping-generations model of a small open economy. Boosting public investment stimulates private capital formation, output, and wages in the long run. The impact effects depend critically on whether public capital is modelled as a stock or as a flow. The welfare benefits are unevenly distributed across generations because capital ownership rises with age and wages rise only gradually (under the stock interpretation). A suitable egalitarian bond policy ensures that everybody gains to the same extent. A simple modified golden rule for public investment is derived. (C) 2002 Elsevier Science B.V. All rights reserved.</p