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How to make a carbon tax reform progressive: The role of subsistence consumption

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  • Klenert, David
  • Mattauch, Linus

Abstract

A major obstacle for introducing carbon pricing are its distributional implications: climate policy is believed to be regressive. We illuminate the role of carbon-intensive subsistence consumption for the prospect of making carbon pricing progressive. The distributional impacts of a carbon tax reform depend on the revenue recycling options: we prove that lump-sum transfers proportional to income and linear income tax cuts make the reform regressive and that this is due only to subsistence consumption. By contrast, returning the revenue as uniform lump-sum transfers renders the carbon tax reform progressive.

Suggested Citation

  • Klenert, David & Mattauch, Linus, 2015. "How to make a carbon tax reform progressive: The role of subsistence consumption," MPRA Paper 65919, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:65919
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    References listed on IDEAS

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    1. Rausch Sebastian & Metcalf Gilbert E. & Reilly John M & Paltsev Sergey, 2010. "Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-46, July.
    2. Jacobs, Bas & de Mooij, Ruud A., 2015. "Pigou meets Mirrlees: On the irrelevance of tax distortions for the second-best Pigouvian tax," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 90-108.
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    17. repec:adr:anecst:y:2011:i:103-104:p:05 is not listed on IDEAS
    18. Florens Flues & Alastair Thomas, 2015. "The distributional effects of energy taxes," OECD Taxation Working Papers 23, OECD Publishing.
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    Citations

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    Cited by:

    1. Bas (B.) Jacobs & Rick (F.) van der Ploeg, 2017. "Should Pollution Taxes Be Targeted At Income Redistribution?," Tinbergen Institute Discussion Papers 17-070/VI, Tinbergen Institute.
    2. Farrell, Niall, 2017. "What Factors Drive Inequalities in Carbon Tax Incidence? Decomposing Socioeconomic Inequalities in Carbon Tax Incidence in Ireland," Ecological Economics, Elsevier, vol. 142(C), pages 31-45.
    3. Diane Aubert & Mireille Chiroleu-Assouline, 2017. "Environmental Tax Reform and Income Distribution with Imperfect Heterogeneous Labor Markets," PSE Working Papers halshs-01550000, HAL.
    4. Klenert, David & Mattauch, Linus & Combet, Emmanuel & Edenhofer, Ottmar & Hepburn, Cameron & Rafaty, Ryan & Stern, Nicholas, 2017. "Making Carbon Pricing Work," MPRA Paper 80943, University Library of Munich, Germany.
    5. Wang, Qian & Hubacek, Klaus & Feng, Kuishuang & Wei, Yi-Ming & Liang, Qiao-Mei, 2016. "Distributional effects of carbon taxation," Applied Energy, Elsevier, vol. 184(C), pages 1123-1131.
    6. repec:ces:ifosdt:v:71:y:2018:i:02:p:14-17 is not listed on IDEAS
    7. repec:eee:eneeco:v:71:y:2018:i:c:p:370-382 is not listed on IDEAS

    More about this item

    Keywords

    carbon tax reform; distribution; revenue recycling; inequality; non-homothetic preferences;

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D60 - Microeconomics - - Welfare Economics - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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