Household heterogeneity, aggregation, and the distributional impacts of environmental taxes

Sebastian Rausch and Giacomo A. Schwarz

Journal of Public Economics, 2016, vol. 138, issue C, 43-57

Abstract: This paper examines how the general equilibrium incidence of an environmental tax depends on the effect of different incomes and preferences of heterogeneous households on aggregate outcomes. We develop a Harberger-type model with general forms of preferences and substitution between capital, labor, and pollution in production that captures the impact of household heterogeneity and interactions with production characteristics on the general equilibrium. We theoretically show that failing to incorporate household heterogeneity can qualitatively affect incidence. We quantitatively illustrate that this aggregation bias can be important for assessing the incidence of a carbon tax, mainly by affecting the returns to factors of production. Our findings are robust to a number of extensions including alternative revenue recycling schemes, pre-existing taxes, non-separable utility in pollution, labor–leisure choice, and multiple commodities.

Keywords: Environmental tax incidence; Heterogeneous households; General equilibrium; Aggregation bias; Distributional impacts (search for similar items in EconPapers)
JEL-codes: H23 Q52 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0047272716300433
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Household heterogeneity, aggregation, and the distributional impacts of environmental taxes (2016)
Working Paper: Household heterogeneity, aggregation, and the distributional impacts of environmental taxes (2015)
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:eee:pubeco:v:138:y:2016:i:c:p:43-57

DOI: 10.1016/j.jpubeco.2016.04.004

Access Statistics for this article

Journal of Public Economics is currently edited by R. Boadway and J. Poterba

More articles in Journal of Public Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().