Geography versus income: the heterogeneous effects of carbon taxation

Charles Labrousse and Yann Perdereau

No 3104, Working Paper Series from European Central Bank

Abstract: The distributive effects of carbon taxation are critical for its political acceptability and depend on both income and geographic factors. Using French administrative data, household surveys, and matched employer-employee records, we document that rural households spend 2.8 times more on fossil fuels than urban households and are employed in firms that emit 2.7 times more greenhouse gases. We incorporate these insights into a spatial heterogeneous-agent model with endogenous migration and wealth accumulation, linking spatial and macroeconomic approaches. After an increase in carbon taxes, we quantify that rural households face 20% higher welfare losses than urban households. In an optimal revenue-recycling exercise, we compare transfers targeting income and geography, and show that neglecting for geography reduces welfare gains by 7%. We conclude that carbon policies should account for spatial differences to improve political feasibility. JEL Classification: C61, E62, H23, Q43, Q58, R13

Keywords: carbon tax; inequalities; migration; revenue recycling; spatial and macroeconomic models (search for similar items in EconPapers)
Date: 2025-08
New Economics Papers: this item is included in nep-dge
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3104~57cada2ed7.en.pdf (application/pdf)

Related works:
Working Paper: Geography versus income: the heterogeneous effects of carbon taxation (2024)
Working Paper: Geography versus income: the heterogeneous effects of carbon taxation (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253104

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().