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Workers or Consumers: Who Pays for Low-Carbon Transition – Theoretical Analysis of Welfare Change in General Equilibrium Setting

Author

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  • Witajewski-Baltvilks Jan

    (University of Warsaw, Poland)

  • Boratyński Jakub

    (University of Lodz, Poland)

Abstract
Policies that are introduced to mitigate adverse consequences of climate change involve economic costs. For some households, these costs will materialise in the form of an increase in prices of consumption goods, whereas for others they will materialise in the form of falling productivity and wages. Disentangling these two effects is important in the light of the design of funds that aim to support the households that are negatively affected by climate policy. In this article, we study the effect of carbon tax on welfare through changes of consumer prices and wages in a general equilibrium setting. In the first step, we review the literature on ‘top-down’ models, which are used to evaluate the macroeconomic cost of climate policy. We find that these models usually do not account for loss of productivity of workers who must change their sector due to climate policy. In the second step, we develop a theoretical, micro-founded, two-sector model that explicitly accounts for the loss of productivity of workers. The compensation of climate-change mitigation costs would require allocation of separate funds for the affected consumers and workers.

Suggested Citation

  • Witajewski-Baltvilks Jan & Boratyński Jakub, 2021. "Workers or Consumers: Who Pays for Low-Carbon Transition – Theoretical Analysis of Welfare Change in General Equilibrium Setting," Central European Economic Journal, Sciendo, vol. 8(55), pages 231-245, January.
    • Handle: RePEc:vrs:ceuecj:v:8:y:2021:i:55:p:231-245:n:18
    DOI: 10.2478/ceej-2021-0017
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    References listed on IDEAS

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    1. Czajkowski Mikołaj, 2021. "Editorial: Special Edition of the Central European Economic Journal to Mark the 70th Birthday of Prof. Tomasz Żylicz," Central European Economic Journal, Sciendo, vol. 8(55), pages 176-179, January.

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    More about this item

    Keywords

    computable general equilibrium models; integrated assessment models; just transition; macroeconomic costs of transition; welfare compensation;
    All these keywords.

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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