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Do the Costs of a Carbon Tax Vanish When Interactions With Other Taxes are Accounted For?

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  • Lawrence H. Goulder

Abstract

Previous analyses of U.S. carbon taxes have tended to ignore interactions between this tax and other, pre-existing U.S. taxes. This paper assesses the effects of the carbon tax using a model that addresses these interactions. The model is unique in integrating a detailed treatment of taxes and attention to nonrenewable resource supply dynamics within a disaggregated general equilibrium framework. We find that the GNP and welfare costs of the carbon tax are significantly lower than what would be predicted if tax interactions were disregarded. When the revenues are used to finance reductions in marginal taxes at the personal or corporate level, the welfare costs are 25-32 percent lower than when the revenues finance lump-sum reductions in taxes. Pre-existing distortions -- specifically, the relatively light taxation of fossil-fuel-producing industries in comparison with other industries -- imply that the gross efficiency costs of carbon taxes are about 15 percent lower than would be the case if fossil-fuel-producing industries were not initially tax-favored.

Suggested Citation

  • Lawrence H. Goulder, 1992. "Do the Costs of a Carbon Tax Vanish When Interactions With Other Taxes are Accounted For?," NBER Working Papers 4061, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4061
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    Cited by:

    1. Robert Ayres, 1994. "On economic disequilibrium and free lunch," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(5), pages 435-454, October.
    2. Marc Vielle & Alain L. Bernard, 1998. "Un exemple d'utilisation : le coût de politiques de réduction des gaz à effet de serre," Économie et Prévision, Programme National Persée, vol. 136(5), pages 33-48.
    3. Katheline Schubert & Olivier Beaumais & Paul Zagamé, 1994. "Équilibre général appliqué et environnement : de nouveaux comportements pour le consommateur et le producteur," Revue Économique, Programme National Persée, vol. 45(3), pages 905-916.
    4. John Pezzey & Andrew Park, 1998. "Reflections on the Double Dividend Debate," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(3), pages 539-555, April.
    5. World Bank, 2011. "Climate Change and Fiscal Policy : A Report for APEC," World Bank Other Operational Studies 2734, The World Bank.
    6. Nihan Akyelken, 2011. "Distance in the Existence of Political Pathologies: Rationalized Transport Policies and Trade," Chapters,in: Transportation and Economic Development Challenges, chapter 4 Edward Elgar Publishing.
    7. Gupta, Sanjeev & Mahler, Walter, 1995. "Taxation of petroleum products : Theory and empirical evidence," Energy Economics, Elsevier, vol. 17(2), pages 101-116, April.
    8. Bossier, Francis & Brechet, Thierry, 1995. "A fiscal reform for increasing employment and mitigating CO2 emissions in Europe," Energy Policy, Elsevier, vol. 23(9), pages 789-798, September.
    9. Olivier Godard & Olivier Beaumais, 1993. "Économie, croissance et environnement. De nouvelles stratégies pour de nouvelles relations," Revue Économique, Programme National Persée, vol. 44(1), pages 143-176.
    10. Robert Ayres, 1995. "Thermodynamics and process analysis for future economic scenarios," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 6(3), pages 207-230, October.
    11. Jaeger, William K., 1995. "The welfare cost of a global carbon tax when tax revenues are recycled," Resource and Energy Economics, Elsevier, vol. 17(1), pages 47-67, May.

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