The Initial Incidence of a Carbon Tax Across US States

Resources for the Future Discussion Paper No. 14-25

28 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: October 15, 2014

Abstract

Carbon taxes introduce potentially uneven cost burdens across the population. The distribution of these costs is especially important in affecting political outcomes. This paper links dynamic overlapping-generations and microsimulation models of the United States to estimate the initial incidence of a carbon tax across states. Geographic differences in incidence are driven primarily by differences in sources of income. Differing patterns of energy use also matter but are relatively less important. The use of the carbon tax revenue plays an important role, particularly in determining how different income sources are affected, as: (1) using carbon tax revenue to cut capital taxes disproportionately benefits states with large shares of capital income; (2) returning the revenue via lump-sum transfers favors relatively low-income states; and (3) returning the revenue via cuts in labor taxes provides a relatively even distribution of cost across states. In general, geographic differences in incidence are substantially smaller than the differences across income groups.

Keywords: carbon tax, distribution, incidence, tax swap, states, geography, 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 US States (October 15, 2014). Resources for the Future Discussion Paper No. 14-25, Available at SSRN: https://ssrn.com/abstract=2537847 or http://dx.doi.org/10.2139/ssrn.2537847

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 )

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Calgary, Alberta T2N 1N4
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Richard D. Morgenstern

Resources for the Future ( email )

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