AEA Papers and Proceedings
ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)
Some Macroeconomic Evidence on Substitution
AEA Papers and Proceedings
(pp. 522–526)
Abstract
We investigate the aggregate elasticity of substitution between clean and dirty energy using time-series data from the United States. To match the data, a standard macro climate-economy model requires an elasticity that is close to one in the long run but well below one in the short run. Impulse response functions show that the elasticity converges slowly to its long-run value after a shock to dirty energy prices. Our findings suggest that carbon taxes reduce emissions more slowly than standard models predict.Citation
Casey, Gregory, Yang Gao, and Peter K. Kruse-Andersen. 2026. "Some Macroeconomic Evidence on Substitution." AEA Papers and Proceedings 116: 522–526. DOI: 10.1257/pandp.20261027Additional Materials
JEL Classification
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q35 Hydrocarbon Resources
- Q41 Energy: Demand and Supply; Prices
- Q42 Alternative Energy Sources
- Q54 Climate; Natural Disasters and Their Management; Global Warming
- Q58 Environmental Economics: Government Policy