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Poverty and distributional effects of carbon pricing in low- and middle-income countries – A global comparative analysis

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  • Dorband, Ira Irina
  • Jakob, Michael
  • Kalkuhl, Matthias
  • Steckel, Jan Christoph

Abstract

Even though concerns about adverse distributional implications for the poor are one of the most important political challenges for carbon pricing, the existing literature reveals ambiguous results. For this reason, we assess the expected incidence of moderate carbon price increases for different income groups in 87 mostly low- and middle-income countries. Building on a consistent dataset and method, we find that for countries with per capita incomes of below USD 15,000 per year (at PPP-adjusted 2011 USD) carbon pricing has, on average, progressive distributional effects. We also develop a novel decomposition technique to show that distributional outcomes are primarily determined by differences among income groups in consumption patterns of energy, rather than of food, goods or services. We argue that an inverse U-shape relationship between energy expenditure shares and income explains why carbon pricing tends to be regressive in countries with relatively higher income. Since these countries are likely to have more financial resources and institutional capacities to deal with distributional issues, our findings suggest that mitigating climate change, raising domestic revenue and reducing economic inequality are not mutually exclusive, even in low- and middle-income countries.

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  • Dorband, Ira Irina & Jakob, Michael & Kalkuhl, Matthias & Steckel, Jan Christoph, 2019. "Poverty and distributional effects of carbon pricing in low- and middle-income countries – A global comparative analysis," World Development, Elsevier, vol. 115(C), pages 246-257.
  • Handle: RePEc:eee:wdevel:v:115:y:2019:i:c:p:246-257
    DOI: 10.1016/j.worlddev.2018.11.015
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    More about this item

    Keywords

    Carbon pricing; Distributional effect; Decomposition analysis; Global comparison; Household data; Low- and middle-income countries;
    All these keywords.

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis

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