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Aggregate and distributional effects of a carbon

Author

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  • Christian.Probstin

    (KU Leuven)

Abstract

To identify the households most affected by a carbon tax I set up a multi-sector model with putty-clay technology. A $100-per-ton carbon tax cuts emissions by 25% after 5 years, but reduces output by 3% in the short run and 4% in the long run. Initially, the tax is progressive despite poorer households spending more on carbon-intensive goods, the prices of which rise. The complementarity of capital and energy causes a sharp decline in capital income, affectingtop earners the most, and leads to job cuts in capital goods-producing industries that employ high-income earners. over time the tax incidence flattens.

Suggested Citation

  • Christian.Probstin, 2024. "Aggregate and distributional effects of a carbon," Working Paper Research 460, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:202410-460
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    File URL: https://www.nbb.be/nl/articles/aggregate-and-distributional-effects-carbon-tax
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    More about this item

    Keywords

    carbon tax; putty-clay; input-output linkages; Income Distribution;
    All these keywords.

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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