How to Use Carbon Tax Revenues

12 Pages Posted: 27 Feb 2016

See all articles by Donald B. Marron

Donald B. Marron

The Urban Institute

Adele C. Morris

The Brookings Institution

Date Written: February 3, 2016

Abstract

How should governments use the considerable revenue carbon taxes can raise? There are many options for cutting other taxes, increasing spending, or reducing borrowing. We organize the options into four goals: offset the new burdens that a carbon tax places on consumers, producers, communities, and the broader economy; support further efforts to reduce greenhouse gas emissions; ameliorate the harms of climate disruption; and fund unrelated public priorities. We identify important tradeoffs across the goals and make several recommendations for policy design. Revenue neutrality, for example, can assuage public concerns about expanding government, but spending may be better than tax reductions for achieving some goals. We recommend that governments use some revenue to reduce other taxes and to soften the blow to lower-income households, coal workers, and their communities, that they be cautious about using revenues to pursue emissions reductions the tax itself encourages, and that they avoid tight earmarks. Governments should also pay special attention to using revenue in ways that attract and sustain stakeholder and public support for a carbon tax.

Keywords: Carbon Tax, Climate Change, Global Warming

JEL Classification: H22, H23, Q52, Q54, Q58

Suggested Citation

Marron, Donald B. and Morris, Adele C., How to Use Carbon Tax Revenues (February 3, 2016). Available at SSRN: https://ssrn.com/abstract=2737990 or http://dx.doi.org/10.2139/ssrn.2737990

Donald B. Marron (Contact Author)

The Urban Institute ( email )

2100 M Street, NW
Washington, DC 20037
United States

Adele C. Morris

The Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

HOME PAGE: http://www.brookings.edu/experts/morrisa.aspx

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