Sectoral Growth Effects of Energy Policies in an Increasing-Varieties Model of the Swiss Economy

Abstract

Summary The paper applies a theoretical model with increasing capital varieties to study the impact of energy on growth. It translates a multisectoral framework version to a computable general equilibrium (CGE) model of the Swiss economy. We study the impacts of a policy aiming at enabling the economy to reach the longterm target of a 2000-Watt-society, implying a substantial reduction of the energy input in the future. We find that (i) the aggregate effects of an ambitious energy efficiency policy turn out to be moderate, (ii) all sectors in the economy continue to grow at robust positive rates (although growth rates decrease in some sectors compared to business-as-usual), and (iii) some industries experience substantially higher growth under regulation. We focus on the different sectoral growth effects to simulate future structural change.

Green Tax Reform, Endogenous Innovation and the Growth Dividend

“…The analytical model extends the theoretical part of Bretschger and Ramer (2012) in several directions. 3 First, we include both preexisting labor and energy taxation.…”

“…Accordingly, we propose an endogenous growth framework in the spirit of Romer (1990) and Grossman and Helpman (1991) as modified in Bretschger and Ramer (2012) to include energy inputs subject to environmental regulation; here we go one step further by considering preexisting distorting labor and energy taxes, direct investment as additional input in R&D, and elastic labor supply. In what follows we present the theoretical foundations of the more complex and more detailed computational model and explore the conditions that could lead to a positive growth dividend.…”

“…In this case, according to (19), growth is promoted, supressed or unaffected by the tax policy if the first term of equation (19) is, respectively, positive, negative or zero. If our modeling assumptions consider labor as the main driver of research, as done in Grossman and Helpman (1991) and Bretschger and Ramer (2012), then γ J → 1. In this case, with limited substitutability between labor and energy in manufacturing, 0 ≤ X < 1, growth is promoted, i.e.g(t e ) > 0.…”

“…In the theoretical part we identify the modeling conditions 3 Bretschger and Ramer (2012) extend the increasing variety model of Romer (1990) to include energy in the intermediate good firms and examine how the substitutability between labor and energy might affect economic growth when the price of the latter increases. In their case -as in ours -each intermediate firm holds a blueprint, or patent, that allows it to produce.…”