Robust Dynamic Optimal Taxation and Environmental Externalities

Li, Xin; Narajabad, Borghan; Temzelides, Theodosios

doi:10.2139/ssrn.2385878

Cited by 1 publication

(2 citation statements)

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“…4 Recent work in finance and macroeconomics has emphasized the importance of ambiguity and uncertainty, for example Hansen, Sargent, and Tallarini Jr (1999), Maenhout (2004), Garlappi, Uppal, and Wang (2007), Cogley, Colacito, Hansen, and Sargent (2008), Izhakian and Yermack (2017), Brenner and Izhakian (2018), Ai, Bansal, Guo, andYaron (2019), andBorovička (2020). Robust control methods have also been used to study the economic impacts of climate change, as in Lemoine and Traeger (2012) and Li, Nezami Narajabad, and Temzelides (2014). In the climate change example, climate damages can have both growth effects and permanent level effects, as estimated empirically in Dell, Jones, and Olken (2012) and Colacito, Hoffmann, and Phan (2018) and analyzed theoretically in Hambel, Kraft, and Schwartz (2015) and Barnett, Brock, and Hansen (2020).…”

Section: Introductionmentioning

confidence: 99%

“…Robust control methods have also been used to study the economic impacts of climate change, as in refs. 30 – 33 , where climate damages can have both permanent growth effects and transitory level effects. However, in the pandemic context, policy decisions trade off temporary (through quarantine and temporary illness) and permanent (through death) implications based on how model uncertainty amplifies concerns about the worst-case outcome.…”

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confidence: 99%

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Epidemic responses under uncertainty

Barnett¹,

Buchak

Yannelis

2023

Proc. Natl. Acad. Sci. U.S.A.

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We examine how policymakers react to a pandemic with uncertainty around key epidemiological and economic policy parameters by embedding a macroeconomic SIR model in a robust control framework. Uncertainty about disease virulence and severity leads to stricter and more persistent quarantines, while uncertainty about the economic costs of mitigation leads to less stringent quarantines. On net, an uncertainty-averse planner adopts stronger mitigation measures. Intuitively, the cost of underestimating the pandemic is out-of-control growth and permanent loss of life, while the cost of underestimating the economic consequences of quarantine is more transitory.

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