Fiscal Interactions and the Case for Carbon Taxes over Grandfathered Carbon Permits

Ian Parry

RFF Working Paper Series from Resources for the Future

Abstract: This paper provides simple formulas for adjusting the costs of carbon taxes and tradable carbon permits to account for interactions with preexisting tax distortions in the labor market. Both policies reduce labor supply as they increase product prices and reduce real household wages; the resulting efficiency losses in the labor market can be substantial relative to partial equilibrium abatement costs. However, much of this added cost can be offset—and perhaps more than offset when additional distortions from the tax system are considered—if revenues from carbon taxes or auctioned permits are used to reduce distortionary taxes. Consequently, there can be a strong case on efficiency grounds for using carbon taxes or auctioned permits over grandfathered carbon permits.

Keywords: carbon taxes, carbon permits; fiscal interactions; revenue recycling (search for similar items in EconPapers)
JEL-codes: H21 H23 Q28 (search for similar items in EconPapers)
Date: 2003-12-01
New Economics Papers: this item is included in nep-ene, nep-env and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Related works:
Journal Article: Fiscal Interactions and the Case for Carbon Taxes Over Grandfathered Carbon Permits (2003)
Working Paper: Fiscal Interactions and the Case for Carbon Taxes over Grandfathered Carbon Permits (2003)
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