This calculator computes the optimal carbon tax. It is based on the paper ”Optimal taxes on fossil fuel in general equilibrium”, by Michael Golosov, John Hassler, Per Krusell and Aleh Tsyvinski, Econometrica, 82:1 January, 2014. The calculator is constructed by Pedro Brinca.
By changing the values under the heading Choice parameters, you can see how they impact the optimal tax. Here is an explanation of the different variables:
- Halflife altruism
- measures how long into the future you need to go to value the welfare of those living then half as much as yourself. This is done all else equal, in particular, that they have the same income as yourself.
- Share C left atmosphere
- measures how much carbon has left the atmosphere after 30 years (to the bioshere and upper layers of ocean).
- Share C
- staying forever is the amount of carbon that stays in the atmosphere forever.
- Halflife trickle down
- measures how fast the remainder of carbon disappear from the atmospehere (to the deep oceans). It is measured in how many years it takes before half of the extra carbon has vanished.
- Damage flow
- is the damage parameter. It is measured as the share of GDP that is lost if there is an excessive 1000 GtC in the atmosphere.