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The Incidence of U.S. Climate Policy: Alternative Uses of Revenues from a Cap-and-Trade Auction

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  • Burtraw, Dallas
  • Sweeney, Richard
  • Walls, Margaret
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    Abstract

    This paper evaluates the costs to households of a carbon dioxide (CO2) cap-and-trade program. We find important variation in the distribution of costs of the policy across 11 regions of the country and across income deciles. The introduction of a price on CO2 emissions is regressive, but this may be outweighed by the distributional effects of CO2 emissions allowances. We evaluate five alternatives for returning any revenues from auctioning emissions allowances—three are progressive (expansion of the Earned Income Tax Credit and two cap-and-dividend approaches), while the others are either neutral (a reduction in payroll taxes) or amplify regressivity (a reduction in the income tax). Regional differences are most substantial for low-income households.

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    Bibliographic Info

    Article provided by National Tax Association in its journal National Tax Journal.

    Volume (Year): 62 (2009)
    Issue (Month): 3 (September)
    Pages: 497-518

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    Handle: RePEc:ntj:journl:v:62:y:2009:i:3:p:497-518

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    Cited by:
    1. Don Fullerton & Garth Heutel & Gilbert E. Metcalf, 2012. "Does the Indexing of Government Transfers Make Carbon Pricing Progressive?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(2), pages 347-353.
    2. Epanchin-Niell, Rebecca S. & Wilen, James E., 2010. "Optimal control of spatial-dynamic processes: The case of biological invasions," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61375, Agricultural and Applied Economics Association.
    3. Martin Beznoska & Johanna Cludius & Viktor Steiner, 2012. "The Incidence of the European Union Emissions Trading System and the Role of Revenue Recycling: Empirical Evidence from Combined Industry- and Household-Level Data," Discussion Papers of DIW Berlin 1227, DIW Berlin, German Institute for Economic Research.
    4. Blonz, Joshua & Burtraw, Dallas & Walls, Margaret A., 2010. "Climate Policy’s Uncertain Outcomes for Households: The Role of Complex Allocation Schemes in Cap and Trade," Discussion Papers dp-10-12, Resources For the Future.
    5. Dallas Burtraw & Samantha Sekar, 2014. "Two world views on carbon revenues," Journal of Environmental Studies and Sciences, Springer, vol. 4(1), pages 110-120, March.
    6. Gonzalez, Fidel, 2012. "Distributional effects of carbon taxes: The case of Mexico," Energy Economics, Elsevier, vol. 34(6), pages 2102-2115.
    7. Cludius, Johanna & Beznoska, Martin & Steiner, Viktor, 2012. "Distributional effects of the European Emissions Trading System and the role of revenue recycling: Empirical evidence from combined industry- and household-level data," Discussion Papers 2012/6, Free University Berlin, School of Business & Economics.
    8. Dissou, Yazid & Siddiqui, Muhammad Shahid, 2014. "Can carbon taxes be progressive?," Energy Economics, Elsevier, vol. 42(C), pages 88-100.

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