The Intergenerational Incidence of Green Tax Reform

CER-ETH Center of Economic Research at ETH Zurich, Working Paper NO. 18/287

31 Pages Posted: 13 Mar 2018

See all articles by Sebastian Rausch

Sebastian Rausch

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich; Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Hidemichi Yonezawa

Statistics Norway

Date Written: March 9, 2018

Abstract

We examine the lifetime incidence and intergenerational distributional effects of an economy wide carbon tax swap using a numerical dynamic general equilibrium model with overlapping generations of the U.S. economy. We highlight various fundamental choices in policy design including (1) the level of the initial carbon tax, (2) the growth rate of the carbon tax trajectory of over time, and (3) alternative ways for revenue recycling. Without revenue recycling, we find that generations born before the tax is introduced experience smaller welfare losses, or even gain, relative to future generations. For suffciently low growth rates of the tax trajectory, the impacts for distant future generations decrease over time. For future generations born after the introduction of the tax, the negative welfare impacts are the smallest (largest) when revenues are recycled through lowering pre-existing capital income taxes (through per-capita lump-sum rebates). For generations born before the tax is introduced, we find that lump-sum rebates favor very old generations and labor (capital) income tax recycling favors very young generations (generations of intermediate age).

Keywords: Carbon tax, Green Tax Reform, Intergenerational Incidence, Distributional Impacts, Overlapping Generations, Climate Policy

JEL Classification: H23, Q52, D91, Q43, C68

Suggested Citation

Rausch, Sebastian and Yonezawa, Hidemichi, The Intergenerational Incidence of Green Tax Reform (March 9, 2018). CER-ETH Center of Economic Research at ETH Zurich, Working Paper NO. 18/287. Available at SSRN: https://ssrn.com/abstract=3137021 or http://dx.doi.org/10.2139/ssrn.3137021

Sebastian Rausch (Contact Author)

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

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

77 Massachusetts Ave, Bldg E40-474
Cambridge, MA 02139
United States

Hidemichi Yonezawa

Statistics Norway ( email )

N-0033 Oslo
Norway

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