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Essays on the macroeconomics of climate change and structural transformation

Pillay, Derek (2022) Essays on the macroeconomics of climate change and structural transformation. PhD thesis, London School of Economics and Political Science.

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Identification Number: 10.21953/lse.00004488


The three chapters of this thesis examine climate change policy from a macroeconomic perspective, and how cross-country patterns of structural transformation are affected by international trade. Chapter 1 studies how demographic change affects optimal carbon taxation. The model combines the standard climate-economy feedbacks from the climate economics literature with an overlapping generations structure that admits changes in fertility rates and life expectancy. I start by deriving the optimal tax-to-GDP ratio analytically, clearly illustrating the channels through which demographic change affects the optimal carbon tax. Quantitatively, I find that accounting for demographic change has a significant impact on the optimal carbon tax and leads to large welfare gains. Chapter 1 assumes a globally harmonised climate policy that is unconstrained by the goals of the Paris Agreement. In contrast, Chapter 2 studies how carbon taxes should be set at the country-level while remaining consistent with the Paris Agreement. To ensure this consistency, each country in the model must comply with an exogenously imposed carbon budget that the policymaker is able to allocate intertemporally by setting the path of carbon taxes. I also assume that countries in my model are small and open, taking the path of climate change and interest rates as given. Using this model, I quantify the optimal path of carbon taxes and the associated output losses for a sample of 35 countries. In addition to examining the optimal policy, I assess the consequences of suboptimal carbon tax policies that provide sectoral carbon tax exemptions. Chapter 3 examines why developing countries may be experiencing premature deindustrialisation (that is, deindustrialisation at lower levels of per capita income and with lower manufacturing shares than has historically been the norm). I start by presenting the key empirical facts, which suggest an important role for international trade. I then use a quantitative trade model to assess how the cross-country distribution of manufacturing shares is affected by various dimensions of global integration (in particular, trade in agriculture, manufacturing and services, and trade imbalances).

Item Type: Thesis (PhD)
Additional Information: © 2022 Derek Pillay
Library of Congress subject classification: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HB Economic Theory
Sets: Departments > Economics
Supervisor: Reis, Ricardo and Sampson, Thomas

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