Taxing Fossil Fuels Under Speculative Storage

37 Pages Posted: 6 Feb 2015

See all articles by Semih Tumen

Semih Tumen

TED University; IZA Institute of Labor Economics

Deren Unalmis

University of York

Ibrahim Unalmis

Government of the Republic of Turkey - Central Bank of the Republic of Turkey

D. Filiz Unsal

International Monetary Fund (IMF) - Research Department

Date Written: December 2014

Abstract

This paper investigates the mechanisms through which environmental taxes on fossil fuelusage can affect the main macroeconomic variables in the short-run. We concentrate on aparticular mechanism: speculative storage. The existence of forward-looking speculators inthe model improves the effectiveness of tax policies in reducing fossil fuel usage. Improvedpolicy effectiveness, however, is costly: it drives inflation and interest rates up, whileimpeding output. Based on this tradeoff, we seek an answer to the question how monetarypolicy should interact with environmental tax policies in our DSGE model of fossil fuelstorage.

Keywords: Fossil fuels, Environmental taxes, Tax policy, General equilibrium models, speculative storage, DSGE, energy, renewable energy, price, fuel storage, prices, oil, fuel supply, investment, fuel consumption, tax policies, fossil fuel consumption, energy consumption, fuel production, renewable energy production, oil production, alternative energy, energy source, spot price, fuel prices, investments, fossil fuel prices, crude oil, renewable energy consumption, alternative energy source, oil prices, energy input, fuel use, energy demand, emissions, energy usage, renewable resources, availability, energy sources, cost of energy, activities, tax rate, fuel market, source of energy, carbon emissions,

JEL Classification: E31, E52, H23, O44

Suggested Citation

Tumen, Semih and Unalmis, Deren and Unalmis, Ibrahim and Unsal, D. Filiz, Taxing Fossil Fuels Under Speculative Storage (December 2014). IMF Working Paper No. 14/228, Available at SSRN: https://ssrn.com/abstract=2561273

Semih Tumen (Contact Author)

TED University ( email )

Ziya Gokalp Bulvari No: 48
Kolej Çankaya, Ankara 06420
Turkey

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Deren Unalmis

University of York ( email )

Heslington
University of York
York, YO10 5DD
United Kingdom

Ibrahim Unalmis

Government of the Republic of Turkey - Central Bank of the Republic of Turkey ( email )

Istiklal Cad. 10 Ulus
06100 Ankara, Ankara 06050
Turkey

D. Filiz Unsal

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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