Does the Indexing of Government Transfers Make Carbon Pricing Progressive?

13 Pages Posted: 1 Feb 2011

See all articles by Don Fullerton

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Garth Heutel

University of North Carolina (UNC) at Greensboro - Department of Economics

Gilbert E. Metcalf

Tufts University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 31, 2011

Abstract

We analyze both the uses side and the sources side incidence of domestic climate policy using an analytical general equilibrium model, taking into account the degree of government program indexing. When transfer programs such as Social Security are explicitly indexed to inflation, higher energy prices automatically lead to cost-of-living adjustments for recipients. We show results with no indexing, 100 percent indexing, and partial indexing based on our analysis of actual transfer programs. When households are classified by annual income, the indexing of U.S. transfers is not enough to offset the regressive uses side, but when they are classified by annual expenditures as a proxy for permanent income, transfer indexing does offset regressivity across the lowest income groups.

JEL Classification: H230, Q540

Suggested Citation

Fullerton, Don and Heutel, Garth and Metcalf, Gilbert E., Does the Indexing of Government Transfers Make Carbon Pricing Progressive? (January 31, 2011). CESifo Working Paper Series No. 3315. Available at SSRN: https://ssrn.com/abstract=1752126

Don Fullerton (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
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Garth Heutel

University of North Carolina (UNC) at Greensboro - Department of Economics ( email )

Greensboro, NC 27402-6165
United States

Gilbert E. Metcalf

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-3685 (Phone)
617-627-3917 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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