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The Possibilities for Global Inequality and Poverty Reduction Using Revenues from Global Carbon Pricing

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Abstract

Global carbon pricing can yield revenues which are large enough to create significant global pro-poor redistributive opportunities. We analyze alternative multidecade growth trajectories from 2015 to 2105 for major global economies with carbon tax rates designed to stabilize emissions in the presence of both continued country growth and autonomous energy use efficiency improvement. In our central case analysis, revenues from globally internalizing carbon pricing rise to 8% and then fall to 6% of gross world product. High growth in India and China reduces global inequality and poverty strongly over time, but important incremental redistributive effects can be achieved using global carbon pricing revenues. Taking into account both between-country effects and previous literature estimates of within-country effects, a global carbon tax alone tends to be regressive in its global incidence. However, if its revenues are redistributed globally via equal per capita transfers, in our central case the Gini coefficient for world income falls by about 3% and the share of the bottom decile rises by 81% on average from 2015 to 2105. The population living in poverty falls by 16% in 2015. Going further, global poverty could be eliminated entirely by 2015 according to our calculations if one third of global carbon tax revenues were redistributed directly to the poorest individuals.

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Paper provided by University of Western Ontario, Economic Policy Research Institute in its series University of Western Ontario, Economic Policy Research Institute Working Papers with number 20127.

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Date of creation: 2012
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Handle: RePEc:uwo:epuwoc:20127

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Postal: Economic Policy Research Institute, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/epri_workingpapers.html

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Keywords: Carbon Pricing; Gini; Poverty Reduction; Millennium Development Goals;

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  1. Xavier Sala-i-Martin, 2002. "The disturbing "rise" of global income inequality," Discussion Papers 0102-44, Columbia University, Department of Economics.
  2. David Coady & Javier Arze del Granado, 2010. "The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries," IMF Working Papers 10/202, International Monetary Fund.
  3. Kevin A. Hasset & Aparna Mathur & Gilbert Metcalf, 2007. "The Incidence of a U.S. Carbon Tax: A Lifetime and Regional Analysis," Discussion Papers Series, Department of Economics, Tufts University 0714, Department of Economics, Tufts University.
  4. Brenner, Mark & Riddle, Matthew & Boyce, James K., 2007. "A Chinese sky trust?: Distributional impacts of carbon charges and revenue recycling in China," Energy Policy, Elsevier, vol. 35(3), pages 1771-1784, March.
  5. Zephyr, 2010. "The city," City, Taylor & Francis Journals, vol. 14(1-2), pages 154-155, February.
  6. Kerkhof, Annemarie C. & Moll, Henri C. & Drissen, Eric & Wilting, Harry C., 2008. "Taxation of multiple greenhouse gases and the effects on income distribution: A case study of the Netherlands," Ecological Economics, Elsevier, vol. 67(2), pages 318-326, September.
  7. Mookherjee, Dilip & Shorrocks, Anthony F, 1982. "A Decomposition Analysis of the Trend in UK Income Inequality," Economic Journal, Royal Economic Society, vol. 92(368), pages 886-902, December.
  8. Elizabeth.J.Symons & Stefan Speck & J.L.R.Proops, 2000. "The Effects of Pollution and Energy Taxes across the European Income Distribution," Keele Department of Economics Discussion Papers (1995-2001) 2000/05, Department of Economics, Keele University.
  9. Datta, Ashokankur, 2010. "The incidence of fuel taxation in India," Energy Economics, Elsevier, vol. 32(Supplemen), pages S26-S33, September.
  10. Arief Anshory Yusuf & Budy P. Resosudarmo, 2007. "On the Distributional Effect of Carbon Tax in Developing Countries: The Case of Indonesia," Working Papers in Economics and Development Studies (WoPEDS) 200705, Department of Economics, Padjadjaran University, revised Aug 2007.
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