Geography versus Income: The Heterogeneous Effects of Carbon Taxation

Charles Labrousse and Yann Perdereau

Working papers from Banque de France

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 work in firms that emit 2.7 times more greenhouse gases. We incorporate these facts into a spatial heterogeneous-agent model with migration, housing and wealth accumulation, bridging spatial and macroeconomic approaches. Carbon taxes generate 56% larger welfare losses for rural households than for urban households, as the former may be trapped due to mobility frictions and homeownership. While uniform or income-based rebates reduce inequality along the income dimension, they leave large spatial disparities that must be offset through location-based transfers. These results suggest that carbon policies should account for spatial differences to improve political feasibility.

Keywords: Carbon Tax; Inequalities; Revenue Recycling; Spatial and Macroeconomic Models; Migration (search for similar items in EconPapers)
JEL-codes: C61 E62 H23 Q43 Q58 R13 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:1063

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