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Carbon Tax and Revenue Recycling: Impacts on Households in British Columbia

49 Pages Posted: 8 Sep 2014 Last revised: 7 Aug 2015

Marisa Beck

University of Waterloo

Nicholas Rivers

University of Ottawa - Graduate School of Public and International Affairs

Randall Wigle

Wilfrid Laurier University - School of Business & Economics; Balsillie School of International Affairs

Hidemichi Yonezawa

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Date Written: February 19, 2015

Abstract

This study investigates the distributional implications of the revenue-neutral carbon tax policy in British Columbia. We use a computable general equilibrium (CGE) model of the Canadian economy and disaggregate households into deciles by annual income using data from a large household expenditure survey. Using the model, we find that the existing BC carbon tax is highly progressive even prior to consideration of the revenue recycling scheme, such that the negative impact of the carbon tax on households with below-median income are smaller than that on households with above-median income. We show that our finding is a result of welfare effects of a carbon tax being determined primarily by the source of a households' income rather than by the destination of its expenditures. Finally, we show that the existing revenue recycling scheme is also progressive. Overall, the tax appears to be highly progressive.

Keywords: carbon taxes, distributional effects, British Columbia, computable general equilibrium analysis

JEL Classification: C68, Q50

Suggested Citation

Beck, Marisa and Rivers, Nicholas and Wigle, Randall and Yonezawa, Hidemichi, Carbon Tax and Revenue Recycling: Impacts on Households in British Columbia (February 19, 2015). Resource and Energy Economics, Vol. 41, 2015. Available at SSRN: https://ssrn.com/abstract=2492766 or http://dx.doi.org/10.2139/ssrn.2492766

Marisa Beck

University of Waterloo ( email )

Waterloo, Ontario N2L 3G1
Canada

Nicholas Rivers

University of Ottawa - Graduate School of Public and International Affairs ( email )

75 Laurier Avenue East
Ottawa, Ontario K1N 6N5
Canada

Randall Wigle

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada
226 772-3164 (Phone)

Balsillie School of International Affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada
226 772-3164 (Phone)

Hidemichi Yonezawa (Contact Author)

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

Zürichbergstrasse 18
Zurich, 8092
Switzerland

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