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Keeping the Government Whole: The Impact of a Cap-and-Dividend Policy for Curbing Global Warming on Government Revenue and Expenditure

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  • James Boyce
  • Matthew Riddle
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    Abstract

    When the United States puts a cap on carbon emissions as part of the effort to address the problem of global climate change, this will increase the prices of fossil fuels, significantly impacting not only consumers but also local, state, and federal governments. Consumers can be “made whole,” in the sense that whatever amount the public pays in higher fuel prices is recycled to the public, by means of a cap-and dividend policy: individual households will come out ahead or behind in monetary terms depending on whether they consume above-average or below-average amounts of carbon. In this paper, we consider policy options for “keeping the government whole,” too; that is, policies to ensure that additional revenues to government compensate adequately for the additional costs to government as a result of the carbon cap. We compare the distributional impacts of two policy alternatives: (i) setting aside a portion of the revenue from carbon permit auctions for government, and distributing the remainder of the revenue to the public in the form of tax-free dividends; or (ii) distributing all of the carbon revenue to households as taxable dividends. The policy of recycling 100% of carbon revenue to the public as taxable dividends has the strongest progressive impact, yielding the biggest net monetary benefits for the largest majority of the people.

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    File URL: http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_151-200/WP188.pdf
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    Bibliographic Info

    Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp188.

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    Date of creation: 2008
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    Handle: RePEc:uma:periwp:wp188

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    Related research

    Keywords: Global warming; fossil fuels; climate change; carbon permits; cap-and-dividend;

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    References

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    1. Matthew Riddle & James Boyce, 2007. "Cap and Dividend: How to Curb Global Warming while Protecting the Incomes of American Families," Working Papers wp150, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Burtraw, Dallas & Sweeney, Richard & Walls, Margaret, 2008. "The Incidence of U.S. Climate Policy: Where You Stand Depends on Where You Sit," Discussion Papers dp-08-28, Resources For the Future.
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    Cited by:
    1. James Boyce & Matthew Riddle, 2010. "CLEAR Economics: State-Level Impacts of the Carbon Limits and Energy for America’s Renewal Act on Family Incomes and Jobs," Published Studies clear_boyce_revised_july2, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Robert Pollin & Jeannette Wicks-Lim & Heidi Garrett-Peltier, 2009. "Green Prosperity: How Clean-Energy Policies Can Fight Poverty and Raise Living Standards in the United States," Published Studies green_prosperity, Political Economy Research Institute, University of Massachusetts at Amherst.

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