Modelling the economy-wide effects of unilateral CO2 pricing under different revenue recycling schemes in Austria – Searching for a triple dividend

In this paper we identify policy implications for implementing carbon pricing in Austria, taking into account model structure uncertainty. Methodologically, we compare the results of two macroeconomic models, DYNK (a New Keynesian model) and WEGDYN-AT (a neoclassical general equilibrium model), to evaluate the effects of carbon pricing under different revenue recycling options. Specifically, we examine the model results with respect to their findings regarding a potential triple dividend, that we define as a simultaneous materialization of i) a reduction in CO2 emissions, ii) positive effects on GDP and employment, and iii) positive and distributionally progressive effects in household consumption possibilities. Accounting for model structure uncertainty improves the robustness of our results; at least within the macroeconomic frameworks applied here. Our results confirm the tradeoff between equity and efficiency identified in previous analyses. In the New Keynesian model, but not in the general equilibrium model, we find evidence for a triple dividend for a combination of the recycling options of non-wage labor cost reductions and lump-sum per-capita transfers (“climate bonus payments”).