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The Intergenerational Incidence Of Green Tax Reform

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  • SEBASTIAN RAUSCH

    (#x2021;Center for Economic Research at ETH (CER-ETH), Department of Management, Technology and Economics, ETH Zurich, Zurich, Switzerland§Joint Program of the Science and Policy of Global Change, Massachusetts Institute of Technology, Cambridge, USA¶Department of Management, Technology and Economics, ETH Zurich (Swiss Federal Institute of Technology Zurich), Zürichbergstrasse 18, 8032 Zurich, Switzerland)

  • HIDEMICHI YONEZAWA

    (#x2021;Center for Economic Research at ETH (CER-ETH), Department of Management, Technology and Economics, ETH Zurich, Zurich, Switzerland)

Abstract

We examine the lifetime incidence and intergenerational distributional effects of an economy-wide carbon tax swap using a numerical dynamic general equilibrium model with overlapping generations of the U.S. economy. We highlight various fundamental choices in policy design including (1) the level of the initial carbon tax, (2) the growth rate of the carbon tax trajectory of over time, and (3) alternative ways for revenue recycling. Without revenue recycling, we find that generations born before the tax is introduced experience smaller welfare losses, or even gain, relative to future generations. For sufficiently low growth rates of the tax trajectory, the impacts for distant future generations decrease over time. For future generations born after the introduction of the tax, the negative welfare impacts are the smallest (largest) when revenues are recycled through lowering pre-existing capital income taxes (through per-capita lump-sum rebates). For generations born before the tax is introduced, we find that lump-sum rebates favor very old generations and labor (capital) income tax recycling favors very young generations (generations of intermediate age).

Suggested Citation

  • Sebastian Rausch & Hidemichi Yonezawa, 2018. "The Intergenerational Incidence Of Green Tax Reform," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 1-25, February.
  • Handle: RePEc:wsi:ccexxx:v:09:y:2018:i:01:n:s2010007818400079
    DOI: 10.1142/S2010007818400079
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    More about this item

    Keywords

    Carbon tax; green tax reform; intergenerational incidence; distributional impacts; overlapping generations; climate policy;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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