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Does the Indexing of Government Transfers Make Carbon Pricing Progressive?

Author

Listed:
  • Don Fullerton
  • Garth Heutel
  • Gilbert E. Metcalf

Abstract

We analyze both the uses side and the sources side incidence of domestic climate policy using an analytical general equilibrium model, taking into account the degree of government program indexing. When transfer programs such as Social Security are explicitly indexed to inflation, higher energy prices automatically lead to cost-of-living adjustments for recipients. We show results with no indexing, 100 percent indexing, and partial indexing based on our analysis of actual transfer programs. When households are classified by annual income, the indexing of U.S. transfers is not enough to offset the regressive uses side, but when they are classified by annual expenditures as a proxy for permanent income, transfer indexing does offset regressivity across the lowest income groups.

Suggested Citation

  • Don Fullerton & Garth Heutel & Gilbert E. Metcalf, 2011. "Does the Indexing of Government Transfers Make Carbon Pricing Progressive?," NBER Working Papers 16768, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16768
    Note: EEE PE
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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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