Fiscal Interactions and the Case for Carbon Taxes over Grandfathered Carbon Permits

Ian Parry

No 10509, Discussion Papers from Resources for the Future

Abstract: This paper provides simple formulas for adjusting the costs of carbon taxes and tradable carbon permits to account for interactions with preexisting tax distortions in the labor market. Both policies reduce labor supply as they increase product prices and reduce real household wages; the resulting efficiency losses in the labor market can be substantial relative to partial equilibrium abatement costs. However, much of this added cost can be offset-and perhaps more than offset when additional distortions from the tax system are considered-if revenues from carbon taxes or auctioned permits are used to reduce distortionary taxes. Consequently, there can be a strong case on efficiency grounds for using carbon taxes or auctioned permits over grandfathered carbon permits.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 31
Date: 2003
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Citations: View citations in EconPapers (36)

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https://ageconsearch.umn.edu/record/10509/files/dp030046.pdf (application/pdf)

Related works:
Journal Article: Fiscal Interactions and the Case for Carbon Taxes Over Grandfathered Carbon Permits (2003)
Working Paper: Fiscal Interactions and the Case for Carbon Taxes over Grandfathered Carbon Permits (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:rffdps:10509

DOI: 10.22004/ag.econ.10509

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