Distributional Impacts of Carbon Pricing: A General Equilibrium Approach with Micro-Data for Households

32 Pages Posted: 31 May 2011 Last revised: 26 May 2014

See all articles by Sebastian Rausch

Sebastian Rausch

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich; Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Gilbert E. Metcalf

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

John M. Reilly

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Date Written: May 2011

Abstract

Many policies to limit greenhouse gas emissions have at their core efforts to put a price on carbon emissions. Carbon pricing impacts households both by raising the cost of carbon intensive products and by changing factor prices. A complete analysis requires taking both effects into account. The impact of carbon pricing is determined by heterogeneity in household spending patterns across income groups as well as heterogeneity in factor income patterns across income groups. It is also affected by precise formulation of the policy (how is the revenue from carbon pricing distributed) as well as the treatment of other government policies (e.g. the treatment of transfer payments). What is often neglected in analyses of policy is the heterogeneity of impacts across households even within income or regional groups. In this paper, we incorporate 15,588 households from the U.S. Consumer and Expenditure Survey data as individual agents in a comparative-static general equilibrium framework. These households are represented within the MIT USREP model, a detailed general equilibrium model of the U.S. economy. In particular, we categorize households by full household income (factor income as well as transfer income) and apply various measures of lifetime income to distinguish households that are temporarily low-income (e.g., retired households drawing down their financial assets) from permanently low-income households. We also provide detailed within-group distributional measures of burden impacts from various policy scenarios.

Suggested Citation

Rausch, Sebastian and Metcalf, Gilbert E. and Reilly, John M., Distributional Impacts of Carbon Pricing: A General Equilibrium Approach with Micro-Data for Households (May 2011). NBER Working Paper No. w17087. Available at SSRN: https://ssrn.com/abstract=1854189

Sebastian Rausch (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

77 Massachusetts Ave, Bldg E40-474
Cambridge, MA 02139
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

John M. Reilly

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

E19-429
77 Massachusetts Ave
Cambridge, MA 02139
United States
617-253-8040 (Phone)

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