Which economic policies should governments introduce to tackle the impact of climate change on the next generation? (1/2)

The Government will offer tax cuts to encourage the construction of environmentally friendly properties and offices. Installation of environmentally friendly home improvements will grant property owners a cut in property taxes (from 19% to 10%). The government will also offer to pay 50% for these installations which include low carbon heating appliances, insulation and window glazing.

In theory, this tax cut will benefit the government through economic growth which is sorely required due to the negative economic impact of Covid-19. A cut in property taxes will have 3 main economic impacts:

1. Workers will be enabled to maintain more of their gross income as they will pay less in property taxes. Consequently, their discretionary income will rise which incentives consumers to spend more as they have more to spend.
2. Economic growth will increase which can be attributed to a rise in consumer spending. This is a result of a higher discretionary income that will cause a rise in aggregate demand leading a surge in Real GDP (which indicates economic growth), which can be indicated on a Keynesian supply curve by a rightwards shift of AD. This will be significant to boost the economy as consumption accounts for roughly 2/3rds of AD.
3. Workers will be incentivized to work more due to a cut in tax rates. This enables the government to receive more from tax revenue. When property tax is high, cuts will lead to an increase in productivity as workers will gain more. This refers to the ideas of the “laffer curve”. This can be indicated by a rightwards shift of LRAS on a neoclassical supply curve.

The most influential benefits will be a reduction in carbon emissions of which residential properties account for 40% of the UK’s total figure. Homes will become increasingly sustainable requiring less maintenance from homeowners. Appliances will decrease our carbon footprint initiating further improvements to developing an eco friendly environment within households and offices.