Decomposing the distributional impact of carbon taxation across six EU countries - Comparing the role of budget shares, carbon intensity, savings rates, and asset ownership

This paper decomposes and compares the distributional impact of uniform national carbon taxes across six EU countries. We quantify the contribution of the key determinants of the carbon tax burden to its impact on inequality and regressivity indicators. We identify large cross-country differences in carbon tax burdens, their composition, and the drivers of the within-country distributional impact. A carbon tax is regressive in all countries, but carbon tax burdens and their impact on income inequality are larger in poorer countries of our sample. Cross-country differences in the primary driver of carbon tax regressivity suggest that the most effective policy lever to mitigate carbon tax regressivity differs across countries. Differences in the composition of the consumption basket play an important role in most countries, but not all. Differences in savings rates play the most important role in the wealthier countries of our sample. The carbon intensity of consumption plays a larger role in the poorer countries of our sample. Overall, this article suggests that differences in the structure of carbon tax incidence and the drivers of its distributional impact across countries pose a challenge to cross-country policy learning, and highlights the need for in-depth country-level and comparative analysis.