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The Initial Incidence of a Carbon Tax across Income Groups

Author

Listed:
  • 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," Discussion Papers dp-14-24, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-14-24
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    References listed on IDEAS

    as
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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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