Challenges in greening the economies: a computable general equilibrium analysis of the Inflation Reduction Act (IRA)

  1. Suárez-Cuesta, David 1
  2. Latorre, María C. 1
  1. 1 Universidad Complutense de Madrid
    info

    Universidad Complutense de Madrid

    Madrid, España

    ROR 02p0gd045

Revista:
Biblioteca electrónica de SSRN

Año de publicación: 2024

Páginas: 24

Tipo: Documento de Trabajo

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Resumen

We use a dynamic Computable General Equilibrium (CGE) model to analyze the effects of the Inflation Reduction Act on the U.S. Our analysis focuses on the green incentives of this policy, in particular the tax credits for climate-related industries. We identify that on the whole the green investments promoted by this Act have a rather low multiplier (i.e., ratio of the change in GDP to the amount of government incentives provided by the IRA). This indicates that IRA’s spending results in less than proportional increases in GDP. However, when we look at the different sectors for which the IRA provides green incentives, the differences in their multipliers are striking. Motor vehicles and Electric Equipment exhibit considerably high multipliers, while Utilities, which receives around 50% of the tax credits, has a very low multiplier. Our analysis, thus, offers particular recommendations on the importance of targeted investments. We also cover other macro and microeconomic effects throughout the 2024-2031 period, running three additional scenarios to estimate the uncapped effect of the tax credits, finding different efficiencies when comparing macro and sectoral results.

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