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The equity and efficiency of carbon taxation: A multi-model, multi-country analysis

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  • Aurélie Méjean

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris, CNRS - Centre National de la Recherche Scientifique)

  • Florian Leblanc

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris, CNRS - Centre National de la Recherche Scientifique)

  • Julien Lefèvre

    (AgroParisTech, CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris)

  • Dimitrios Fragkiadakis
  • Panagiotis Fragkos
  • Rafael Garaffa

    (JRC - European Commission - Joint Research Centre [Seville])

  • Cormac Lynch

    (University of Exeter)

  • Toon Vandyck

    (KU Leuven - Catholic University of Leuven = Katholieke Universiteit Leuven)

Abstract

Climate policies shape inequalities through their effects on structural change via the source of income channel, and on household expenditures via the use of income channel. We compare the impact of carbon pricing on within-country inequalities when tax revenues are recycled through lump-sum transfers or labor tax cuts. We account for the impact of the labor share on inequalities, and compare results across regions with contrasted levels of development, using four macroeconomic integrated assessment models. We find that accounting for the source of income reduces the performance gap between labor tax cuts and lump-sum transfers. Also, carbon pricing with revenue recycling is compatible with reducing inequality, and can increase the consumption of the poorest quartile. We highlight the central role of labor income in shaping the distributional consequences of climate policy beyond consumption-side price effects. Our results suggest that sustaining the labor share can strengthen the progressivity of climate policies.

Suggested Citation

  • Aurélie Méjean & Florian Leblanc & Julien Lefèvre & Dimitrios Fragkiadakis & Panagiotis Fragkos & Rafael Garaffa & Cormac Lynch & Toon Vandyck, 2026. "The equity and efficiency of carbon taxation: A multi-model, multi-country analysis," Post-Print hal-05751015, HAL.
    • Handle: RePEc:hal:journl:hal-05751015
    DOI: 10.1142/S2010007826400105
    Note: View the original document on HAL open archive server: https://hal.science/hal-05751015v1
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