Work Package 4: Analysis of the Effect of a Carbon Tax in Austria
In Work Package 4, the WIFO-"DYNK" (Dynamic New Keynesian) Model is used to assess carbon tax scenarios for Austria. The DYNK model traces the interlinkages between 62 industries (NACE rev. 2) as well as the consumption of five household income groups using 47 consumption categories. The model is organized in 8 modules that are displayed as boxes in the following simplified scheme of DYNK.
Simplified scheme of DYNK
Each module contains a range of specific datasets and partly econometric estimated equations. In the CATs project, the emphasis lies on the detailed modelling of private consumption. In this module, the DYNK model enables the implementation of energy / CO2 taxation with specific designs that take into account issues of technology choice as well as of income distribution:
- an energy / CO2 tax could be levied at the level of durables, treating the different models of durables (car fleet) with a different (implicit) tax rate, so that the energy/carbon efficiency of the durable stock could be altered;
- a 'progressive' CO2 tax that increases with annual consumption could be designed for the use of electricity and natural gas;
- the effects of uniform tax rates in combination with a tax recycling via labour cost reductions or lump-sum eco-transfers to households will be analysed.
For the tax recycling a differentiation between income quintiles will be implemented to mitigate the negative effects for lower incomes.