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Keeping the Government Whole: The Impact of a Cap-and-Dividend Policy for Curbing Global Warming on Government Revenue and Expenditure

Author

Listed:
  • James Boyce
  • Matthew Riddle

Abstract

When the United States puts a cap on carbon emissions as part of the effort to address the problem of global climate change, this will increase the prices of fossil fuels, significantly impacting not only consumers but also local, state, and federal governments. Consumers can be “made whole,” in the sense that whatever amount the public pays in higher fuel prices is recycled to the public, by means of a cap-and dividend policy: individual households will come out ahead or behind in monetary terms depending on whether they consume above-average or below-average amounts of carbon. In this paper, we consider policy options for “keeping the government whole,” too; that is, policies to ensure that additional revenues to government compensate adequately for the additional costs to government as a result of the carbon cap. We compare the distributional impacts of two policy alternatives: (i) setting aside a portion of the revenue from carbon permit auctions for government, and distributing the remainder of the revenue to the public in the form of tax-free dividends; or (ii) distributing all of the carbon revenue to households as taxable dividends. The policy of recycling 100% of carbon revenue to the public as taxable dividends has the strongest progressive impact, yielding the biggest net monetary benefits for the largest majority of the people.

Suggested Citation

  • James Boyce & Matthew Riddle, 2008. "Keeping the Government Whole: The Impact of a Cap-and-Dividend Policy for Curbing Global Warming on Government Revenue and Expenditure," Working Papers wp188, Political Economy Research Institute, University of Massachusetts at Amherst.
  • Handle: RePEc:uma:periwp:wp188
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    File URL: https://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_151-200/WP188.pdf
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    References listed on IDEAS

    as
    1. Matthew Riddle & James Boyce, 2007. "Cap and Dividend: How to Curb Global Warming while Protecting the Incomes of American Families," Working Papers wp150, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Dinan, Terry & Rogers, Diane Lim, 2002. "Distributional Effects of Carbon AllowanceTrading: How Government Decisions Determine Winners and Losers," National Tax Journal, National Tax Association, vol. 55(N. 2), pages 199-221, June.
    3. Burtraw, Dallas & Sweeney, Richard & Walls, Margaret, 2008. "The Incidence of U.S. Climate Policy: Where You Stand Depends on Where You Sit," Discussion Papers dp-08-28, Resources For the Future.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Robert Pollin & Jeannette Wicks-Lim & Heidi Garrett-Peltier, 2009. "Green Prosperity: How Clean-Energy Policies Can Fight Poverty and Raise Living Standards in the United States," Published Studies green_prosperity, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. James Boyce & Matthew Riddle, 2010. "CLEAR Economics: State-Level Impacts of the Carbon Limits and Energy for America’s Renewal Act on Family Incomes and Jobs," Published Studies clear_boyce_revised_july2, Political Economy Research Institute, University of Massachusetts at Amherst.

    More about this item

    Keywords

    Global warming; fossil fuels; climate change; carbon permits; cap-and-dividend;

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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