Effects of B.C.’s Carbon Tax on GDP

For households, taxing gasoline, natural gas and other fossil fuels increases the price of most goods and services, and the extent of the price rise depends on the carbon intensity of each of the latter. [...] Figure 3 illustrates the evolution of real GDP per capita from 2008 to 2016; the series drops significantly in the last quarter of 2008 and in the first quarter of 2009 with the start of the Great Recession in Canada, bottoming out towards the end of 2009 and recovering slowly thereafter. [...] Fixing the parameters of the VAR model (i.e., the system of equations (4)) to their estimated coefficients over the 2008:1 to 2016:12 period, and using actual values for the exogenous variables over this period, we simulate, for both the gasoline and the diesel VAR cases, the paths of per capita GDP changes, ∆? ? , and of price changes, ∆? ? , under two scenarios: (i) with changes in real carbon t. [...] The introduction of a broad-based revenue-neutral carbon tax by the government of the province of British Columbia in 2008 and in the following years provides a natural experience in this respect. [...] Using a VAR framework and considering the impact of carbon tax on gasoline and diesel prices, we find no difference in the dynamic relationship between the prices of these two oil refined products and per capita GDP changes before and after the introduction of the carbon tax.