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A Distributional Analysis of an Environmental Tax Shift

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  • Gilbert E. Metcalf

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Abstract

I use data from the 1994 Consumer Expenditure Survey as well as other sources to measure the distributional impact of green tax reforms and consumption tax reforms using both annual income and lifetime income approaches to rank households. A modest tax reform in which environmental taxes equal to 10% of federal receipts are collected has a negligible impact on the income distribution when the funds are rebated to households through reductions in the payroll tax and personal income tax. The degree of income shifting can be adjusted with changes in how the revenues are returned to households and it is possible to increase the progressivity of the tax system with an environmental tax reform. I then compare these reforms to a reform that shifts the tax base from income to consumption. In this case, it is difficult to maintain the level of progressivity that exists under the current income tax although ways exist by which the regressivity of the reform could be blunted. Whether the long term growth gains from consumption tax reform would offset the initial increase in regressivity remains to be determined. A shift to greater reliance on environmental taxes would reduce the progressivity of the tax system. This analysis indicates that reforms can be designed to preserve the existing income distribution. In fact, it appears to be easier to maintain distributional neutrality with a Green tax reform than with a comprehensive consumption tax reform.

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Bibliographic Info

Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 9801.

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Date of creation: 1998
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Handle: RePEc:tuf:tuftec:9801

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  1. Martin Feldstein, 1987. "Imputing Corporate Tax Liabilities to Individual Taxpayers," NBER Working Papers 2349, National Bureau of Economic Research, Inc.
  2. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-89, September.
  3. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "A General Equilibrium Model for Tax Policy Evaluation," NBER Books, National Bureau of Economic Research, Inc, number ball85-1, May.
  4. 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.
  5. Lawrence H. Goulder, 1994. "Energy Taxes: Traditional Efficiency Effects and Environmental Implications," NBER Chapters, in: Tax Policy and the Economy, Volume 8, pages 105-158 National Bureau of Economic Research, Inc.
  6. James M. Poterba, 1991. "Is the Gasoline Tax Regressive?," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 145-164 National Bureau of Economic Research, Inc.
  7. Daniel R. Feenberg & Andrew W. Mitrusi & James M. Poterba, 1997. "Distributional Effects of Adopting a National Retail Sales Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 11, pages 49-90 National Bureau of Economic Research, Inc.
  8. Don Fullerton & Gilbert Metcalf, 1997. "Environmental Controls, Scarcity Rents, and Pre-Existing Distortions," NBER Working Papers 6091, National Bureau of Economic Research, Inc.
  9. Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
  10. James M. Poterba, 1989. "Lifetime Incidence and the Distributional Burden of Excise Taxes," NBER Working Papers 2833, National Bureau of Economic Research, Inc.
  11. Pearce, David W, 1991. "The Role of Carbon Taxes in Adjusting to Global Warming," Economic Journal, Royal Economic Society, vol. 101(407), pages 938-48, July.
  12. Nicholas Bull & Kevin A. Hassett & Gilbert E. Metcalf, 1994. "Who Pays Broad-Based Energy Taxes? Computing Lifetime and Regional Incidence," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 145-164.
  13. Gilbert E. Metcalf, 1997. "Measuring the Incidence of a National Retail Sales Tax: Annual Versus Lifetime Incidence Measures," Discussion Papers Series, Department of Economics, Tufts University 9702, Department of Economics, Tufts University.
  14. Feldstein, Martin, 1988. "Imputing Corporate Tax Liabilities to Individual Taxpayers," National Tax Journal, National Tax Association, vol. 41(1), pages 37-59, March.
  15. Don Fullerton & Gilbert E. Metcalf, 1997. "Environmental Taxes and the Double Dividends Hypothesis: Did You Really Expect Something for Nothing?," Discussion Papers Series, Department of Economics, Tufts University 9706, Department of Economics, Tufts University.
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Cited by:
  1. A. Lans Bovenberg & Lawrence H. Goulder, 2000. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does it Cost?," NBER Working Papers 7654, National Bureau of Economic Research, Inc.
  2. David Yu, 1998. "Rational Bubbles Under Diverse Information," Discussion Papers Series, Department of Economics, Tufts University 9816, Department of Economics, Tufts University.
  3. James Boyce, 2003. "Inequality and Environmental Protection," Working Papers wp52, Political Economy Research Institute, University of Massachusetts at Amherst.
  4. Oladosu, Gbadebo & Rose, Adam, 2007. "Income distribution impacts of climate change mitigation policy in the Susquehanna River Basin Economy," Energy Economics, Elsevier, vol. 29(3), pages 520-544, May.
  5. Paul O'Brien & Ann Vourc'h, 2002. "Encouraging Environmentally Sustainable Growth: Experience in OECD Countries," Empirica, Springer, vol. 29(2), pages 93-111, June.
  6. David Yu, 1998. "Two Equivalence Theorems For Government Finance," Discussion Papers Series, Department of Economics, Tufts University 9817, Department of Economics, Tufts University.

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