How should environmental policy respond to economic fluctuations caused by persistent productivity shocks? This paper answers that question using a dynamic stochastic general equilibrium real business cycle model that includes a pollution externality. I first estimate the relationship between the cyclical components of carbon dioxide emissions and US GDP and find it to be inelastic. Using this result to calibrate the model, I find that optimal policy allows carbon emissions to be procyclical: increasing during expansions and decreasing during recessions.However, optimal policy dampens the procyclicality of emissions compared to the unregulated case. A price effect from costlier abatement during booms outweighs an income effect of greater demand for clean air. I also model a decentralized economy, where government chooses an emissions tax or quantity restriction and firms and consumers respond. The optimal emissions tax rate and the optimal emissions quota are both procyclical: during recessions, the tax rate and the emissions quota both decrease.JEL codes: Q58, E32, Q54 Keywords: Climate change; Environmental policy I would like to thank Don Fullerton, Bill Hogan, Stephen Holland, John Horowitz, Bidisha Lahiri, Billy Pizer, Rob Stavins, Dan Tortorice, Richard Zeckhauser, two anonymous referees, and various seminar participants for helpful comments, and the Kernan Brothers fellowship at the Harvard University Center for the Environment for funding. 3Business cycles can substantially affect an economy, and many policies recognize economic fluctuations and are designed to adapt to them. For example, unemployment insurance is designed to have a stabilizing countercyclical effect since payments increase with unemployment. Environmental policy, though, typically has not been designed to respond to business cycles, likely because the scale of most environmental policies is small relative to the economy. However, addressing global climate change will require policies that dwarf conventional environmental policies in scale and scope. Can climate policy designers continue to ignore business cycles, or does climate policy require a more explicit integration with macroeconomic fluctuations? This paper investigates how environmental policy optimally responds to business cycles.I develop a dynamic stochastic general equilibrium model with persistent productivity shocks and with pollution as a stock variable that negatively affects the economy. The model is calibrated to the US economy and to damages from carbon dioxide, the leading greenhouse gas.I numerically solve for the dynamic optimal response of policy to shocks. A welfare analysis compares the dynamic policy that optimally adapts to productivity shocks to the best static policy that holds emissions constant at its long-run optimal value but ignores shocks. I also model a decentralized economy, where firms and consumers optimize in response to a government policy of pollution taxes or quantity constraints, potentially under information asymmetry.This analysis hi...

We estimate the causal effects of acute fine particulate matter exposure on mortality, health care use, and medical costs among the US elderly using Medicare data. We instrument for air pollution using changes in local wind direction and develop a new approach that uses machine learning to estimate the life-years lost due to pollution exposure. Finally, we characterize treatment effect heterogeneity using both life expectancy and generic machine learning inference. Both approaches find that mortality effects are concentrated in about 25 percent of the elderly population. (JEL I12, J14, Q51, Q53)

, and the WCERE for helpful comments. Dominik Mockus and Eric Zou provided excellent research assistance. We thank Jean Roth for assistance with the Medicare data and Daniel Feenberg and Mohan Ramanujan for system administration. Research reported in this publication was supported by the National Institute on Aging of the National Institutes of Health under Award Number R01AG053350. The content is solely the responsibility of the authors and does not necessarily represent the official views of the National Institutes of Health nor of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

We study the distributional effects of a pollution tax in general equilibrium, with general forms of substitution where pollution might be a relative complement or substitute for labor or for capital in production. We find closed form solutions for pollution, output prices, and factor prices. Various special cases help clarify the impact of differential factor intensities, substitution effects, and output effects. Intuitively, the pollution tax might place disproportionate burdens on capital if the polluting sector is capital intensive, or if labor is a better substitute for pollution than is capital; however, conditions are found where these intuitive results do not hold. We show exact conditions for the wage to rise relative to the capital return. Plausible values are then assigned to all the parameters, and we find that variations over the possible range of factor intensities have less impact than variations over the possible range of elasticities.

We thank Will Mautz and Camden Sweed for valuable research assistance, GSU, UNCG, and the Harvard Center for Risk Analysis for funding, Darren Lubotsky for providing his code to implement the multiple proxies procedure, and Allen Bellas and conference and seminar participants at UNCG, GSU, Harvard School of Public Health, and the Midwest Economics Association meetings for helpful comments. Ruhm thanks the University of Virginia Bankard Fund for partial financial support. The views expressed in this article are those of the authors and do not necessarily reflect those of the Federal Trade Commission. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. ABSTRACTWe investigate the predictive power of survey-elicited time preferences using a representative sample of US residents. In regressions controlling for demographics and risk preferences, we show that the discount factor elicited from choice experiments using multiple price lists and real payments predicts various health, energy, and financial outcomes, including overall self-reported health, smoking, drinking, car fuel efficiency, and credit card balance. We allow for time-inconsistent preferences and find that the long-run and present bias discount factors ( and ) are each significantly associated in the expected direction with several of these outcomes. Finally, we explore alternate measures of time preference. Elicited discount factors are correlated with several such measures, including self-reported willpower. A multiple proxies approach using these alternate measures shows that our estimated associations between the time-consistent discount factor and health, energy, and financial outcomes may be conservative.