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Distributional effects of carbon taxes: The case of Mexico

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  • Gonzalez, Fidel

Abstract

In this study, I develop an analytical general equilibrium model to assess the distributional effects across income groups of a carbon tax assuming that the revenue from the carbon tax is recycled in two different ways: as a manufacturing tax-cut and a food subsidy. I use this analytical model to provide intuition about the main distributional components. The model is calibrated with data from Mexico to obtain unambiguous price and quantity changes. I find that the distribution of the costs is driven by the way the revenue is recycled. In particular, the costs are distributed regressively when the revenue is recycled as a manufacturing tax cut and progressively when it is recycled as a food subsidy. Providing a food subsidy also generates higher welfare and lower carbon emissions than the manufacturing tax cut. To compare and test the robustness of the numerical findings for Mexico, I calibrate the model with data for a developed country, specifically the U.S.A. Despite differences in the magnitude of the changes in some variables, the general findings mentioned above also hold for U.S.A. data. These results suggest that, as found for the U.S.A. in recent studies, carbon taxes are not necessarily regressive. Rather, the way revenue is recycled is a major determinant of how the carbon tax costs are distributed.

Suggested Citation

  • Gonzalez, Fidel, 2012. "Distributional effects of carbon taxes: The case of Mexico," Energy Economics, Elsevier, vol. 34(6), pages 2102-2115.
  • Handle: RePEc:eee:eneeco:v:34:y:2012:i:6:p:2102-2115
    DOI: 10.1016/j.eneco.2012.03.007
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jiang, Zhujun & Shao, Shuai, 2014. "Distributional effects of a carbon tax on Chinese households: A case of Shanghai," Energy Policy, Elsevier, vol. 73(C), pages 269-277.
    2. Wang, Feng & Zhang, Bing, 2016. "Distributional incidence of green electricity price subsidies in China," Energy Policy, Elsevier, vol. 88(C), pages 27-38.
    3. Heindl, Peter & Löschel, Andreas, 2015. "Social implications of green growth policies from the perspective of energy sector reform and its impact on households," CAWM Discussion Papers 81, University of Münster, Center of Applied Economic Research Münster (CAWM).
    4. Qian Wang & Qiao-Mei Liang, 2015. "Will a carbon tax hinder China’s efforts to improve its primary income distribution status?," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 20(8), pages 1407-1436, December.
    5. Landis, Florian & Heindl, Peter, 2016. "Renewable energy targets in the context of the EU ETS: Whom do they benefit exactly?," ZEW Discussion Papers 16-026, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. da Silva Freitas, Lucio Flavio & de Santana Ribeiro, Luiz Carlos & de Souza, Kênia Barreiro & Hewings, Geoffrey John Dennis, 2016. "The distributional effects of emissions taxation in Brazil and their implications for climate policy," Energy Economics, Elsevier, vol. 59(C), pages 37-44.
    7. Zhang, Kun & Wang, Qian & Liang, Qiao-Mei & Chen, Hao, 2016. "A bibliometric analysis of research on carbon tax from 1989 to 2014," Renewable and Sustainable Energy Reviews, Elsevier, vol. 58(C), pages 297-310.
    8. Pereira, Alfredo & Pereira, Rui, 2017. "The Role of Electricity for the Decarbonization of the Portuguese Economy - DGEP Technical Report," MPRA Paper 84782, University Library of Munich, Germany.
    9. Wang, Qian & Hubacek, Klaus & Feng, Kuishuang & Wei, Yi-Ming & Liang, Qiao-Mei, 2016. "Distributional effects of carbon taxation," Applied Energy, Elsevier, vol. 184(C), pages 1123-1131.
    10. Qiao-Mei Liang & Qian Wang & Yi-Ming Wei, 2013. "Assessing the Distributional Impacts of Carbon Tax among Households across Different Income Groups: The Case of China," Energy & Environment, , vol. 24(7-8), pages 1323-1346, December.
    11. Xaquín Garcia-Muros & Mercedes Burguillo & Mikel Gonzalez-Eguino & Desiderio Romero-Jordán, 2014. "Local air pollution and global climate change taxes: a distributional analysis," Working Papers 2014-01, BC3.

    More about this item

    Keywords

    Carbon tax; Incidence; Developing countries; Income distribution; General equilibrium;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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