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

Sebastian Rausch and Giacomo Schwarz ()
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Giacomo Schwarz: ETH Zurich, Switzerland

No 16/230, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

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 a ect incidence. We quantitatively illustrate that this aggregation bias can be important for assessing the incidence of a carbon tax, mainly by a ecting the returns to factors of production. Our findings are robust to a number of extensions including alternative revenue recycling schemes, preexisting taxes, non-separable utility in pollution, labor-leisure choice, and multiple commodities.

JEL-codes: H23 Q52 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2016-01
New Economics Papers: this item is included in nep-ene, nep-env and nep-pbe
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Citations: View citations in EconPapers (45)

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Related works:
Journal Article: Household heterogeneity, aggregation, and the distributional impacts of environmental taxes (2016)
Working Paper: Household heterogeneity, aggregation, and the distributional impacts of environmental taxes (2015)
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