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The Macroeconomic Impact of Europe’s Carbon Taxes
Gilbert E. Metcalf and James H. Stock
January 2023
We estimate the macroeconomic impacts of carbon taxes on GDP and employment growth rates using 30 years of data on carbon taxation in various European countries. We find no evidence for a negative impact on employment or GDP growth but rather find a zero to modest positive impact. We also find a cumulative emissions reduction on the order of 4 to 6 percent for a $40/ton CO2 tax covering 30% of emissions. Reductions would likely be greater for a broad-based U.S. carbon tax since European carbon taxes typically do not cover those sectors with the lowest marginal abatement costs.
