Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171720
Authors: 
Bretschger, Lucas
Pattakou, Aimilia
Year of Publication: 
2017
Series/Report no.: 
Economics Working Paper Series 17/277
Abstract: 
The paper analyzes the effects of varying climate impacts on the social cost of carbon and economic growth. We use polynomial damage functions in a model of an endogenously growing two-sector economy. The framework includes nonrenewable natural resources which cause greenhouse gas emissions; pollution stock harms capital and reduces economic growth. We find a big effect of the selected damage function on the social cost of carbon and a significant impact on the growth rate. In our calibration a quartic damage function raises the social cost of carbon by more than a factor of ten compared to the linear function. In the social optimum the growth rate remains positive even when the damage function is highly convex. We test the robustness of the results by adding pollution decay and lowering the elasticity of intertemporal substitution which does not alter our results. We find that high marginal climate damages require stringent climate policies but do not preclude positive economic growth despite convexity, provided that policies are designed in an efficient manner.
Subjects: 
Climate damages
social cost of carbon
endogenous growth
polynomial functions
JEL: 
Q43
O47
Q56
O41
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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