Corporate Taxation and Carbon Emissions

Luigi Iovino, Thorsten Martin and Julien Sauvagnat

No 17915, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study the relationship between corporate taxation and carbon emissions in the U.S. We show that dirty firms pay lower profit taxes. This relationship is driven by dirty firms benefiting disproportionately more from the tax shield of debt due to their higher leverage. In addition, we document that the higher leverage of dirty firms is fully accounted for by the larger share of tangible assets owned by such firms. We build a general-equilibrium multi-sector economy and show that a revenue-neutral increase in profit taxation could lead to large decreases in aggregate carbon emissions without any noticeable change in GDP.

Keywords: Leverage; Carbon emissions; Corporate taxes (search for similar items in EconPapers)
JEL-codes: H32 Q58 (search for similar items in EconPapers)
Date: 2023-02
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