19
Sep
2017
Neeley vs. Murphy on Carbon Tax
We take our blog feuding to the big lights. An excerpt:
Suppose some mobsters go around killing people who owe them money on their gambling debts, and I point out to them, “Excuse me, fellas, if you just broke their legs with a baseball bat, more of them would be able to pay you off.” In this scenario, did I just admit that breaking people’s legs makes them more productive? Of course not. I was merely pointing out that breaking their legs hurt their productivity less than killing them outright.
I think you may have chosen a bad analogy.
From a mob debt-collecting perspective it may well be the case that leg-breaking does improve productivity of debt-collectors over both killing debtors and and just threatening them but not physically harming them. And we do not have enough information to determine if improving productivity of debt-collectors isn’t better for the economy than the reduced productivity of people with broken leg..
Also if one assumes that it is possible to tax carbon to exactly match the external costs of its production isn’t it reasonable to claim that the tax would increase growth over the case with no tax ?
Wouldn’t the tax move resources away from carbon production to uses that (when the external costs are factored in) are actually more productive ? If so, then the tax would lead to growth in productivity.
From a more recent rff report:
Three key conclusions emerge from Tables 3 and 4. First, reducing CO2 emissions with a
carbon tax scaled to central estimates of the social cost of carbon causes relatively small
reductions in full consumption. As shown in a separate analysis, a similar tax would cause 2030
CO2 emissions to fall more than 40 percent below 2005 levels while causing a loss of
consumption of less than 0.18 percent.
Second, the welfare costs per ton in the corporate income tax cut scenario are
significantly below the central estimates of the social cost of carbon, the measure of the
climate-related benefits. Based on these estimates of the environmental benefits, this policy
would pass a cost–benefit test by a significant margin. In the scenario with lump-sum rebating
of the revenues, the cost is marginally higher than the central estimate of the social cost of
carbon. ”
So the capital tax one passes cost benefit by significant margin, the lump sum just fails – is that a reasonable reading?
From the graph you show in the IER post the lump sum is by far the worst option. If the capital tax passes cost benefit by a significant margin and the lump sum only just fails, it seems reasonable to expect the labor and consumption tax options to pass by a smaller margin.
Also, a word for the alrmists. Te total reduction in cnsuption is 0.18% best case or 0.81%
Submitted in mid sentence by hitting a wrong key, before my usual inadequate typo check. We are not talking about the end of civilisation or a return to the stone age even if the tax were introduced. The sky is not going to fall.
Oh yes, and the link
http://www.rff.org/files/document/file/RFF-PB-16-06_0.pdf
Harold,
The difference between the two reports is that the one only considers the non-environmental effects of the tax swap, while the second includes an estimate of environmental benefits.
So, per the RFF estimates, swapping carbon taxes for capital taxes would be a net plus even without any environmental benefit, a “fee and dividend” would be a net negative even including environmental benefits, and a swap of carbon taxes for labor or consumption taxes would be a net positive if environmental benefits are included, but not if they aren’t.
Does that make sense?
Josiah,
This is what I understand
The second report compares the direct cost to the social costs of carbon. I may have misunderstood this, but I took it to be that if the cost was the same as the social cost of carbon we came out even – that s a cost/benefit analysis would be neutral.
I am reasonably happy to believe that the win-win is unrealistic. If there were no consideration of environmental costs there would be no desire to do this tax swap. However, the environmental cost is also measured in $. We cannot just ignore this and we should not treat it differently.
Harold,
I agree environmental benefits should be considered. But the striking thing is that some versions of the swap would be justified even without looking at the environmental benefits.
I guess you will always find a tax that is more distorting so the win- win is a technical if not political possibility.
I am always amazed that statists can simultaneously impose a regime of “stimulus” via “fiscal” and “monetary” policy while at the same time imposing a regime of “de-stimulus” via anti “climate change” policies. And they know EXACTLY how much of each is needed. And they know EXACTLY how much democracy needs to be imposed upon Iraq, LIbya and Syria.
Those people are just so wise and smart. I’m awestruck.