System Development Of Fiscal Policy Simulation On Carbon Emission Based On DSGE

Excessive emission of carbon dioxide has become the arch-criminal of global warming, thus an international cooperation to control carbon emission is determined by the international community. Facing this serious condition of global cooperation and growing pressure to reduce domestic emission, Chinese government should make scientific and reasonable policies to reduce carbon emission. However, whether reducing carbon emissions would have an effect on Chinese economy, even lead an economic crisis. According to the specific carbon emission reduction measure—carbon tax, this paper, based on DSGE tools and policy simulation method, simulates the fluctuation of economic indicators(employment, capital, output, investment) and pollution indicators(carbon emission, cost of emission reduction) before and after carbon tax is imposed. We can observe the impact of carbon tax on China economy and research the feasibility of carbon tax policy through the comparison of these two scenarios analysis.When it comes to the specific technical implementation to amend the basic DSGE model, this paper introduces the external negative effects of pollution and the fluctuation of labor market into the DSGE model, building a DSGE model including two scenarios—carbon tax is imposed and not. From the respect of solving model, in the light of the optimal control theory and Uhlig solution method, the steady-state equations are linearized. At last, we calibrate the basic structure parameters of this model based on the statistical yearbook data.According to the theoretical model which has been constructed, this paper uses the Matlab and C# language to develop a DSGE-based simulation system of carbon emission reduction fiscal policy. Via this system, this paper carries out a policy shock simulation that carbon tax is imposed in China when technical shock is a normal state. When no carbon tax is imposed, carbon emissions aren’t controlled effectively. Carbon emissions and the cost of emission reduction increase yearly when no effective measures to control carbon emission, China economy develops in a rough form. On the contrary, carbon tax policy has a negative effect on China economy, causing the economy decline in volatility in a short term. But in a long term, carbon emission and the cost of emission reduction are controlled effectively and Chinese economy grows stably. The result of policy simulation strongly proves that carbon tax is an effective measure to control carbon emissions, doing no negative effect on the stable development of social economy.