Distortionary Taxation in General Equilibrium Climate Modeling

The meeting of economists and modelers at the Fourth Annual Conference on Global Economic Analysis indicates the importance of global modeling and, consequently, global datasets. The GTAP data base has become a leading dataset used by researchers worldwide for a large number of important issues. In this paper, we discuss the importance of distortionary taxation in general equilibrium climate modeling. Towards that end, we'd like to do the following. First, we discuss how distortionary taxation affects our policy choices in the area of environmental policymaking in general and global climate change in particular. Then, we discuss how GTAP could be expanded to incorporate distortionary factor taxes (as well as consumption taxes) so that researchers can carry out applied research in a second best world with distortionary taxation. Finally, we also demonstrate its use with the MIT Joint Program on the Science and Policy of Global Change's CGE model known as EPPA.