Understanding Distributional Impacts of Carbon Pricing – Insights from Comparative Analysis

Herwig Immervoll (), Jules Linden (), Cathal O'Donoghue () and Denisa Sologon
Additional contact information
Herwig Immervoll: OECD, Paris
Jules Linden: LISER (CEPS/INSTEAD)
Cathal O'Donoghue: University of Galway

No 17898, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Carbon pricing is becoming increasingly common but raises equity concerns and is frequently perceived as putting higher burdens on the poor than the rich. This paper discusses the reasons for unequal carbon price burdens across countries and population groups, through the lens of a comparative analysis for two countries with comparable climates but different income levels, Lithuania and Finland. The simulations consider multiple revenue recycling options, and they account for both the direct burdens from households’ fuel consumption and indirect burdens associated with the impact of carbon charges on the prices of other goods. With no compensation to affected households, average burdens are larger and also more regressive in Lithuania than in Finland, largely because of cross-country differences in energy expenditure patterns. Net distributional outcomes depend crucially on how carbon tax revenues are used, however, and carefully designed compensation can prevent regressive impacts of carbon-price packages.

Keywords: Carbon tax burden; Distributional impact; Energy budget share; Environmental tax reform; Carbon taxation; Revenue recycling (search for similar items in EconPapers)
JEL-codes: C8 D12 D31 H23 Q52 (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-res
References: Add references at CitEc
Citations:

Downloads: (external link)
https://docs.iza.org/dp17898.pdf (application/pdf)

Related works:
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:iza:izadps:dp17898

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().