THE EFFECTS OF A CARBON TAX : The case of Sweden

Abstract: This paper investigates the effects of the introduction of the carbon tax in Sweden. In order to do this, a time series analysis was carried out, and the VECM model was used. The variables included in the model are the CO2 emissions, the carbon tax rate, the GDP per capita, the consumer price index and the energy consumption. The main finding from the results is in line with the previous works and the theoretical assumptions. Therefore, in the long-run, an increase in the carbon tax is significantly correlated with a reduction in carbon dioxide emissions. This implies that the carbon tax is an effective policy for reducing emissions. Moreover, according to the results, an increase in the GDP per capita and in the consumer price index are significantly correlated with a growth the carbon dioxide emissions, while energy consumption is not a significant determinant of CO2 emissions.