Advanced Search
MyIDEAS: Login to save this paper or follow this series

Adjusting Carbon Cost Analyses to Account for Prior Tax Distortions

Contents:

Author Info

  • Parry, Ian

    ()
    (Resources for the Future)

Abstract

This paper discusses how carbon abatement policies interact with the tax system, and how these interactions affect the overall costs of carbon controls. We provide formulas for adjusting cost estimates of auctioned and grandfathered carbon emissions from partial equilibrium energy models into rough estimates of general equilibrium costs that account for fiscal interactions. In the basic model with a tax on labor income, the general equilibrium costs of (revenue-neutral) auctioned permits are around 25% higher than the partial equilibrium costs; those of grandfathered permits, which do not directly raise revenues for recycling, are typically more than 100% higher. However, when allowance is made for complicating factors, such as the effect of tax subsidies on raising the distortionary costs of the tax system, the efficiency gains from recycling revenues from auctioned permits are larger. Indeed the general equilibrium costs of (revenue-neutral) auctioned permits can be negative for modest abatement levels.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.rff.org/RFF/documents/RFF-DP-02-47.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-02-47.

as in new window
Length:
Date of creation: 01 Aug 2002
Date of revision:
Handle: RePEc:rff:dpaper:dp-02-47

Contact details of provider:
Web page: http://www.rff.org
More information through EDIRC

Related research

Keywords: carbon permits; tax distortions; revenue recycling; general equilibrium costs;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Parry, Ian W. H. & Bento, Antonio M., 2000. "Tax Deductions, Environmental Policy, and the "Double Dividend" Hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 67-96, January.
  2. Berman, E. & Bui, L.T., 1997. "Environmental Regulation and Labor demand: Evidence from the South Coast Air Basin," Papers 82, Boston University - Industry Studies Programme.
  3. Martin Feldstein, 1995. "Tax Avoidance and the Deadweight Loss of the Income Tax," NBER Working Papers 5055, National Bureau of Economic Research, Inc.
  4. Browning, Edgar K & Gronberg, Timothy & Liu, Liqun, 2000. "Alternative Measures of the Marginal Cost of Funds," Economic Inquiry, Western Economic Association International, vol. 38(4), pages 591-99, October.
  5. King, Mervyn A., 1980. "An econometric model of tenure choice and demand for housing as a joint decision," Journal of Public Economics, Elsevier, vol. 14(2), pages 137-159, October.
  6. Jorgenson, D.W. & Wilcoxen, P.J., 1991. "Reducing US Carbon Dioxide Emissions: The Cost of Different Goals," Harvard Institute of Economic Research Working Papers 1575, Harvard - Institute of Economic Research.
  7. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 773-88, December.
  8. Parry, Ian & Pizer, William & Fischer, Carolyn, 2002. "How Large Are the Welfare Gains from Technological Innovation Induced by Environmental Policies?," Discussion Papers dp-00-15-rev, Resources For the Future.
  9. Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Discussion Papers dp-97-18-rev, Resources For the Future.
  10. Lawrence H. Goulder & Ian W. H. Parry & Dallas Burtraw, 1996. "Revenue-Raising vs. Other Approaches to Environmental Protection: The Critical Significance of Pre-Existing Tax Distortions," NBER Working Papers 5641, National Bureau of Economic Research, Inc.
  11. Bovenberg, A.L. & Mooij, R.A. de, 1994. "Environmental levies and distortionary taxation," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152985, Tilburg University.
  12. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
  13. Boyd Roy & Krutilla Kerry & Viscusi W. Kip, 1995. "Energy Taxation as a Policy Instrument to Reduce CO2 Emissions: A Net Benefit Analysis," Journal of Environmental Economics and Management, Elsevier, vol. 29(1), pages 1-24, July.
  14. Burtraw, Dallas & Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1998. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," Discussion Papers dp-98-22, Resources For the Future.
  15. Charles L. Ballard & Don Fullerton, 1992. "Distortionary Taxes and the Provision of Public Goods," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 117-131, Summer.
  16. Pizer, William A. & Kopp, Raymond, 2005. "Calculating the Costs of Environmental Regulation," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 25, pages 1307-1351 Elsevier.
  17. A. Lans Bovenberg & Lawrence H. Goulder, 1994. "Optimal Environmental Taxation in the Presence of Other Taxes: General Equilibrium Analyses," NBER Working Papers 4897, National Bureau of Economic Research, Inc.
  18. Rapaport, Carol, 1997. "Housing Demand and Community Choice: An Empirical Analysis," Journal of Urban Economics, Elsevier, vol. 42(2), pages 243-260, September.
  19. Stavins, Robert, 2004. "Environmental Economics," Discussion Papers dp-04-54, Resources For the Future.
  20. Browning, Edgar K, 1987. "On the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 77(1), pages 11-23, March.
  21. Mervyn A. King, 1980. "An econometric model of tenure choice and demand for housing as a joint decision," NBER Chapters, in: Econometric Studies in Public Finance, pages 137-159 National Bureau of Economic Research, Inc.
  22. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
  23. Harvey S. Rosen, 1983. "Housing Subsidies: Effects on Housing Decisions, Efficiency, and Equity," NBER Working Papers 1161, National Bureau of Economic Research, Inc.
  24. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  25. Bovenberg, A Lans & de Mooij, Ruud A, 1997. "Environmental Levies and Distortionary Taxation: Reply," American Economic Review, American Economic Association, vol. 87(1), pages 252-53, March.
  26. Dowlatabadi, Hadi, 1998. "Sensitivity of climate change mitigation estimates to assumptions about technical change," Energy Economics, Elsevier, vol. 20(5-6), pages 473-493, December.
  27. Sandmo, Agnar, 1976. "Optimal taxation : An introduction to the literature," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 37-54.
  28. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ian W. H. Parry, 2003. "Fiscal Interactions and the Case for Carbon Taxes Over Grandfathered Carbon Permits," Oxford Review of Economic Policy, Oxford University Press, vol. 19(3), pages 385-399.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:rff:dpaper:dp-02-47. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.