Social Equity Concerns and Differentiated Environmental Taxes

CER-ETH – Center of Economic Research at ETH Zurich, Working paper 16/252

42 Pages Posted: 30 Nov 2016

See all articles by Jan Abrell

Jan Abrell

ETH Zürich - Centre for Energy Policy and Economics (CEPE)

Sebastian Rausch

ZEW – Leibniz Centre for European Economic Research; Heidelberg University - Alfred Weber Institute for Economics

Schwarz Giacomo

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

Date Written: November 24, 2016

Abstract

This paper examines pollution tax differentiation across industries in light of social equity concerns using theoretical and numerical general equilibrium analyses in an optimal tax framework. We characterize the drivers for non-uniform optimal taxes emanating from the interaction of household heterogeneity with social preferences. Quantitatively assessing the case of price-based CO2 emissions control in the U.S. economy, we find that optimal carbon taxes differ largely across industries, even when social inequality aversion is low. Our results are robust with respect to the stringency of the environmental target, non-optimal redistribution schemes, and parametric uncertainty in firms’ and households’ equilibrium tax responses.

Keywords: Differentiated environmental taxes, Carbon pricing, Industries, Heterogeneous households, Social inequality, Optimal taxation, General equilibrium

JEL Classification: H23, Q52, C68

Suggested Citation

Abrell, Jan and Rausch, Sebastian and Giacomo, Schwarz, Social Equity Concerns and Differentiated Environmental Taxes (November 24, 2016). CER-ETH – Center of Economic Research at ETH Zurich, Working paper 16/252, Available at SSRN: https://ssrn.com/abstract=2875705 or http://dx.doi.org/10.2139/ssrn.2875705

Jan Abrell (Contact Author)

ETH Zürich - Centre for Energy Policy and Economics (CEPE) ( email )

8092 Zurich
Switzerland

Sebastian Rausch

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

HOME PAGE: http://www.sebastianrausch.com

Heidelberg University - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

Schwarz Giacomo

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

Zürichbergstrasse 18
Zurich, 8092
Switzerland

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