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The Initial Incidence of a Carbon Tax across Income Groups

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  • Williams III, Roerton C.

    (Resources for the Future)

  • Gordon, Hal

    (Resources for the Future)

  • Burtraw, Dallas

    (Resources for the Future)

  • Jared C. Carbone
  • Morgenstern, Richard D.

    (Resources for the Future)

Abstract

Carbon taxes efficiently reduce greenhouse gas emissions but are criticized as regressive. This paper links dynamic overlapping-generation and microsimulation models of the United States to estimate the initial incidence. We find that while carbon taxes are regressive, the incidence depends much more on how carbon tax revenue is used. Recycling revenues to cut capital taxes is efficient but exacerbates regressivity. Lump-sum rebates are less efficient but much more progressive, benefiting the three lower income quintiles even when ignoring environmental benefits. A labor tax swap represents an intermediate option, more progressive than a capital tax swap and more efficient than a rebate.

Suggested Citation

  • Williams III, Roerton C. & Gordon, Hal & Burtraw, Dallas & Jared C. Carbone & Morgenstern, Richard D., 2014. "The Initial Incidence of a Carbon Tax across Income Groups," RFF Working Paper Series dp-14-24, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-14-24
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    References listed on IDEAS

    as
    1. Burtraw, Dallas & Sweeney, Richard & Walls, Margaret, 2009. "The Incidence of U.S. Climate Policy: Alternative Uses of Revenues From a Cap-and-Trade Auction," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(3), pages 497-518, September.
    2. Ian W.H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 2002. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 25, pages 471-503, Edward Elgar Publishing.
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    4. Kevin A. Hassett & Aparna Mathur & Gilbert E. Metcalf, 2009. "The Incidence of a U.S. Carbon Tax: A Lifetime and Regional Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 155-178.
    5. Fullerton Don & Heutel Garth, 2011. "Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-26, January.
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    7. Parry, Ian W.H. & Williams, Roberton C. III, 2010. "What Are the Costs of Meeting Distributional Objectives in Designing Domestic Climate Policy?," RFF Working Paper Series dp-10-51, Resources for the Future.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    carbon tax; distribution; incidence; tax swap; income quintiles; climate change;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • 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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