The Initial Incidence of a Carbon Tax Across Income Groups

Resources for the Future Discussion Paper No. 14-24

24 Pages Posted: 15 Dec 2014

See all articles by Roberton C. Williams

Roberton C. Williams

University of Maryland - Department of Agricultural & Resource Economics; National Bureau of Economic Research (NBER); Resources for the Future

Hal Gordon

Resources for the Future

Dallas Burtraw

Resources for the Future

Jared C. Carbone

University of Calgary - Department of Economics

Richard D. Morgenstern

Resources for the Future

Date Written: August 15, 2014

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.

Keywords: carbon tax, distribution, incidence, tax swap, income quintiles, climate change

JEL Classification: H22, H23, Q52

Suggested Citation

Williams, Roberton C. and Gordon, Hal and Burtraw, Dallas and Carbone, Jared C. and Morgenstern, Richard D., The Initial Incidence of a Carbon Tax Across Income Groups (August 15, 2014). Resources for the Future Discussion Paper No. 14-24, Available at SSRN: https://ssrn.com/abstract=2537839 or http://dx.doi.org/10.2139/ssrn.2537839

Roberton C. Williams (Contact Author)

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Resources for the Future ( email )

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Hal Gordon

Resources for the Future ( email )

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Dallas Burtraw

Resources for the Future ( email )

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Jared C. Carbone

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
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Richard D. Morgenstern

Resources for the Future ( email )

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