The Welfare Effects of Carbon Tax on Chinese Households: A Study Based on the 2013 Chip Survey Data

Based on the micro-data from the 2013 Chinese Household Income Project (CHIP) Survey, the authors use a Quadratic Almost Ideal Demand System (QUAIDS) model to simulate and measure the impacts on the welfare of urban and rural households with different incomes after a carbon tax at 50RMB/ton was levied in China. The results show that the collection of carbon tax will increase households’ consumer spending to varying degrees. In urban areas, the carbon tax exerts the greatest impact on low-income households, followed by high-income households; while in rural areas, it has the most significant effects on high-income households and the least on low-income households. On the whole, carbon tax’s impact on urban households is greater than that on rural households. To a certain extent, it can help the household income inequality change for the better and narrow the urban–rural income gap. Since the carbon tax does not act on the distribution of Chinese household income in a simply regressive or progressive way, the authors believe that China should implement supporting policies such as tax subsidies or tax refund as supplements to carbon taxation in an effort to establish a mechanism for cyclic utilization of carbon tax revenue.