Joel Wood

The Potential Impacts of Climate Change on Piketty's Measure of Wealth Inequality

A climate-Solow model is used to examine the potential impacts of climate change on the capital-to-income ratio and the net of depreciation share of income to capital, a measure of wealth concentration and income distribution between capital and labour respectively, over the next two centuries. The capital-to-income ratio will eventually fall if damage from climate change increases the depreciation rate of capital. However, this decline in the capital-to-income ratio is somewhat mitigated if climate change acts to slow labor-augmenting technical progress. The capital to income ratio will increase more with climate change, if labour productivity is impacted. However, in the early part of next century, beyond 2100, this increase is because income will start falling faster than capital (wealth) declines. Furthermore, climate change reduces the net share of income accruing to capital in all scenarios and is most severely impacted when climate change reduces the growth rate of labour productivity. The implications are clear that the owners of capital should favour policies that mitigate climate change.

A simple climate-Solow model for introducing the economics of climate change to undergraduate students

In this paper the simplest integrated assessment model is developed in order to illustrate to undergraduate students the economic issues associated with climate change. The growth model developed in this paper is an extension of the basic Solow model and includes a simple climate model. Even though the model is very simple it is very powerful in its predictions. Students use the model to explore various scenarios illustrating how economic activity today will inflict damages from higher temperatures on future generations. But students also observe that future generations will be richer than today’s generation due to productivity growth and population stabilization. Hence, the richer future generations will not be as rich as they would be without climate change. Since the cost of action is absorbed by the current generation and the benefits of action accrue to future generations students can conduct a cost-benefit analysis and explore the importance of the discount rate. The appendix provides step-by-step instructions for students to setup the model in MS Excel and to conduct simulations.

Second-Best Optimal Gasoline Taxes for Ontario and the Greater Toronto-Hamilton Area

This paper uses a representative agent model and Canadian data to calculate the optimal gasoline taxes for Ontario and the Greater Toronto-Hamilton Area (GTHA) in a second-best setting with pre-existing distortionary income taxes. The results suggest a second-best optimal gasoline tax (40.57 cents per litre in 2006 Canadian dollars) for the GTHA that is much higher than the current tax rate (24.7 cents per litre), and also higher than recently proposed increases. The resulting value is insensitive to whether the additional revenue is used to reduce taxes on income or to incrementally fund increased public transit infrastructure (The Big Move plan). However, in the absence of a regional tax, the second-best optimal gasoline tax for Ontario as a whole (28.51 cents per litre in 2006 Canadian dollars) is slightly higher than the current tax rate and in-line with proposed increases.