Using Difference-in-Differences Analysis and the Kocyk Geometric Lag Model to Estimate Aspects of Carbon Tax Effectiveness in Nordic Countries

This paper generally looks at the connections between carbon taxes and carbon emission levels in Nordic countries over a period from the 1960s to the early 2010s. Most of the existing literature on this topicfinds that carbon taxes do have a significant impact upon carbon emissions levels in some countries while not in others. In many countries which have this policy there is no significant impact that can be seen and there is a discussion as to why this might be the case and what needs to be done to fix these potential issues to effectively combat climate change.One such idea looks at how carbon taxes might become less effective at reducing carbon emissions over time. This paper attempts to take a more in depth look at the way carbon taxes impact emissions levels and how their effectiveness might change and deviate over time. Using different econometric approaches, this paper asks a slightly different question than what most of the existing literature looks at. Instead of looking at the short-term impacts of carbon taxes on carbon emissions this paper looks at this question from a longer-term perspective where the effect of these taxes can change and deviate, especially if the rate of carbon taxes is not updated to a degree where it keeps up with increasing price levels within a country. I use the Koyck model to examine this issue as it allows me to see whether or not the effectiveness of carbon taxes at reducing carbon emissions decays over time. I also use another approach: I use difference-in-differences analysis where a control country with no carbon taxes is used to compare treatment countries which have active carbon tax policies to look at the differences in emission levels between countries which do and do not have tax policies. This quasi-experimental research design allows me to somewhat simulate how a traditional scientific experiment would be constructed, by looking at the causal impacts of a policy implementation which in this case is the carbon tax.