The Initial Incidence of a Carbon Tax Across Income Groups

Roberton Williams, Hal Gordon, Dallas Burtraw, Jared Carbone and Richard D. Morgenstern

National Tax Journal, 2015, vol. 68, issue 1, 195-214

Abstract: Carbon taxes efficiently reduce greenhouse gas emissions, but are criticized as regressive. This paper links dynamic overlapping-generation and micro-simulation models of the United States to estimate the initial incidence of carbon taxes. We find that while carbon taxes are regressive, incidence depends much more on how carbon tax revenue is used. Recycling revenues to cut capital taxes is efficient but exacerbates regressivity. Lump sum rebates are less efficient, but much more progressive, benefitting the three lower income quintiles even when ignoring environmental benefits. A labor tax swap represents an intermediate option, as it is more progressive than a capital tax swap and more efficient than a rebate.

Date: 2015
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Working Paper: The Initial Incidence of a Carbon Tax across Income Groups (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:68:y:2015:i:1:p:195-214

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