Targeted Carbon Tax Reforms

36 Pages Posted: 12 Feb 2018 Last revised: 26 Oct 2018

See all articles by Maia King

Maia King

University of Oxford - Blavatnik School of Government

Bassel Tarbush

University of Oxford - Merton College

Alexander Teytelboym

University of Oxford - Department of Economics; University of Oxford - Institute for New Economic Thinking at the Oxford Martin School

Date Written: August 27, 2018

Abstract

We show that while an economy-wide carbon tax reform must lead to a fall in aggregate emissions, a policy that targets only some sectors can bring about an even greater emissions reduction. This is because taxing emissions of certain sectors can in principle contribute to an increase in aggregate emissions via a tax rebate effect. We show that, in the presence of intersectoral linkages, the most effective carbon tax reform targets sectors based not on their direct emissions but on their aggregate emissions impacts i.e. the change in aggregate emissions that results from individually taxing each sector. We analytically characterise these impacts in an intersectoral network model and empirically illustrate effective carbon tax reforms in two economies.

Keywords: emissions tax, carbon tax, pollution tax, climate change, environmental tax reform, second-best policy, input-output linkages, intersectoral network, cap-and-trade.

JEL Classification: D51, D62, H23, Q54

Suggested Citation

King, Maia and Tarbush, Bassel and Teytelboym, Alexander, Targeted Carbon Tax Reforms (August 27, 2018). Available at SSRN: https://ssrn.com/abstract=3120330 or http://dx.doi.org/10.2139/ssrn.3120330

Maia King

University of Oxford - Blavatnik School of Government ( email )

10 Merton St
Oxford, Oxfordshire OX1 4JJ
United Kingdom

Bassel Tarbush

University of Oxford - Merton College ( email )

Merton College
Oxford, OX1 4JD
United Kingdom

Alexander Teytelboym (Contact Author)

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, OX1 3UQ
United Kingdom

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School ( email )

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

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