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A Carbon Wealth Tax: Modelling, Empirics, and Policy

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  • Neves José Pedro Bastos

    (Brazilian Ministry of Finance, Brasília, Brasília, Brazil)

  • Semmler Willi

    (The New School, New York, USA)

Abstract

Although economists widely advocate carbon pricing as an effective solution to reduce carbon emissions, this mechanism has had so far limited effects. This paper proposes a new type of tax to help finance (and accelerate) the green transition. A carbon wealth tax (CWT) is proposed to be levied on carbon-intensive (brown) wealth rather than primarily on carbon-intensive goods. We consider tax implementation issues such as tax base, incidence, and efficiency. Moreover, we analyze the impacts of such a tax scheme by setting up a model of asset pricing and dynamic portfolio decisions. Green and carbon-intensive returns used in the model are calibrated with low-frequency returns on stock prices between 2010 and 2021. We find that such a tax and subsidy scheme is a feasible and effective instrument in speeding up the transition to a greener economy, particularly in protracted periods of economic contraction. Our approach also brings a new perspective to the wealth inequality discussions.

Suggested Citation

  • Neves José Pedro Bastos & Semmler Willi, 2025. "A Carbon Wealth Tax: Modelling, Empirics, and Policy," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 245(6), pages 643-672.
    • Handle: RePEc:jns:jbstat:v:245:y:2025:i:6:p:643-672:n:1004
    DOI: 10.1515/jbnst-2024-0078
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    References listed on IDEAS

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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