DISTRIBUTIONAL IMPLICATIONS OF A NATIONAL CO2 TAX IN THE U.S. ACROSS INCOME CLASSES AND REGIONS: A MULTI-MODEL OVERVIEW

Justin Caron, Jefferson Cole, Richard Goettle, Chikara Onda, James McFarland and Jared Woollacott
Additional contact information
Justin Caron: Massachusetts Institute of Technology, 77 Massachusetts Avenue, Cambridge, MA 02139, USA2HEC Montréal, 3000 chemin de la Côte-Sainte-Catherine, Montréal, QC, H3T 2A7, Canada
Jefferson Cole: U.S. Environmental Protection Agency, 1200 Pennsylvania Avenue NW, Washington, DC 20460, USA
Richard Goettle: Northeastern University, 360 Huntington Ave, Boston, MA 02115, USA5Dale Jorgenson Associates, 433 NH Route, 119 East Fitzwilliam, NH 03447, USA
Chikara Onda: Stanford University, Emmett Interdisciplinary Program in Environment and Resources, 473 Via Ortega, Y2E2 Suite 226, Stanford, CA 94305, USA
James McFarland: U.S. Environmental Protection Agency, 1200 Pennsylvania Avenue NW, Washington, DC 20460, USA
Jared Woollacott: RTI International, 3040 E. Cornwallis Rd., Durham, NC 27709, USA

Climate Change Economics (CCE), 2018, vol. 09, issue 01, 1-32

Abstract: This paper presents a multi-model assessment of the distributional impacts of carbon pricing. A set of harmonized representative CO2 taxes and tax revenue recycling schemes is implemented in five large-scale economy-wide general equilibrium models. Recycling schemes include various combinations of uniform transfers to households and labor and capital income tax reductions. Particular focus is put on equity — the distribution of impacts across household incomes — and efficiency, evaluated in terms of household welfare. Despite important differences in the assumptions underlying the models, we find general agreement regarding the ranking of recycling schemes in terms of both efficiency and equity. All models identify a clear trade-off between efficient but regressive capital tax reductions and progressive but costly uniform transfers to households; all agree upon the inferiority of labor tax reductions in terms of welfare efficiency; and all agree that different combinations of capital tax reductions and household transfers can be used to balance efficiency and distributional concerns. A subset of the models go further and find that equity concerns, particularly regarding the impact of the tax on low income households, can be alleviated without sacrificing much of the double-dividend benefits offered by capital tax rebates. There is, however, less agreement regarding the progressivity of CO2 taxation net of revenue recycling. Regionally, the models agree that abatement and welfare impacts will vary considerably across regions of the U.S. and generally agree on their broad geographical distribution. There is, however, little agreement regarding the regions which would profit more from the various recycling schemes.

Keywords: Climate policy; CO2 tax; carbon tax; distributional impacts; equity; progressivity; household welfare; double-dividends; model comparison; computable general equilibrium modeling (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (10)

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DOI: 10.1142/S2010007818400043

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