Yang Gao

Biography

Yang’s main research interests lie in Macroeconomics and Environmental Economics. She studies the macroeconomic and welfare implications of climate change and climate policies, with an emphasis on the roles of firm dynamics and market frictions. Her current research examines how climate policies interact with production-side distortions and frictions, aiming to uncover their true efficiency, distributional, and aggregate impacts over the short- and long-run horizons. Methodologically, her work combines econometric analysis of micro- and macro-level data with theoretical investigations and quantitative macroeconomic modeling. Prior to attending UC Santa Barbara, Yang was awarded a Bachelor’s Degree in Economics from Renmin University of China.

Job Market Paper Title

"Beyond Emissions: The Implications of Capital Misallocation on Optimal Carbon Tax"

Abstract

I study optimal carbon taxation when capital is misallocated across firms. Using data on U.S. public firms, I document that firm-level revenue-based emissions intensity is negatively correlated with the return to capital, indicating that capital is misallocated toward dirty firms. Embedding this pattern into a misallocation framework, I uncover a reallocation mechanism: a carbon tax can reduce resource misallocation and boost aggregate productivity by reallocating capital from dirty to clean firms. I develop a dynamic, general-equilibrium climate-economy model with heterogeneous firms and tangibility-dependent financial frictions: dirty firms hold more tangible assets and face looser collateral constraints, attracting excess capital. Calibrated to firm-level balance sheet and emissions data, the model implies that a carbon tax raises aggregate productivity over a wide range of tax rates. The allocative efficiency gains generate welfare improvements beyond those from internalizing emissions, increasing the optimal carbon tax by 75% relative to a benchmark without pre-existing misallocation. Consistent with the same mechanism, removing financial frictions to equalize returns further reduces economy-wide emissions intensity.

Keywords: Keywords: Carbon taxes, Second best environmental policy, Capital misallocation, Financial frictions, Asset tangibility

JEL Codes: H23, O47, E22, G32