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Incentivizing Investors for a Greener Economy
Published online by Cambridge University Press: 16 April 2024
Abstract
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We demonstrate that investment income taxes incentivize capital allocation to the ecofriendly green sector away from the non-ecofriendly brown sector in a stylized economy. This tax reduces the arrival intensity of climate disasters, delivers the socially optimal allocation, and can be jointly implemented with a carbon tax, expanding policymakers’ toolkit to reduce climate disasters. Extending the model with heterogeneous investors, we show that investment income taxes can obtain support from a political majority and thereby relax political constraints faced by a carbon tax alone.
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This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.- Copyright
- © The Author(s), 2024. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Footnotes
We thank an anonymous referee, Manuel Adelino, Jennie Bai, Alain Bensoussan, Asaf Bernstein, Hendrik Bessembinder (the editor), Svetlana Boyarchenko, Gunther Capelle-Blancard (discussant), Agostino Capponi, Klaus Desmet, Diogo Duarte, Scott Frame, William Fuchs, Stefano Giglio, Francois Gourio, Michael Hasler, Shiyang Huang (discussant), Kris Jacobs, Ralph Koijen, Alexandr Kopytov (discussant), Ali Lazrak, Hong Liu, Matteo Maggiori, Aaron Makinen, Ian Martin, Tim McQuade, Humberto Moreira, Vladimir Mukharlyamov (discussant), Vitaly Orlov (discussant), Esteban Rossi-Hansberg, Asani Sarkar (discussant), David Sraer, Lucian Taylor, Stijn G. Van Nieuwerburgh, Toni Whited, Constantine Yannelis, Leeat Yariv, Alexander Zentefis, Lu Zhang, and Xingtan Zhang, as well as participants at the 2022 Wharton Conference on Law and Macroeconomics, 2023 China International Conference in Finance, 2023 Midwest Finance Association Annual Meeting, 2023 Eastern Finance Association Annual Meeting, 2023 Southwestern Finance Association Conference, 2022 Texas Economic Theory Camp, 2022 World Finance and Banking Symposium, 2022 Asian Finance Association Annual Conference, 2022 Africa Meeting of the Econometric Society, Lingnan University in Hong Kong, and UT-Dallas seminar participants for helpful discussions and comments.
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