The Intergenerational Incidence of Green Tax Reform

Sebastian Rausch and Hidemichi Yonezawa

No 18/287, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: We examine the lifetime incidence and intergenerational distributional effects of an economywide carbon tax swap using a numerical dynamic general equilibrium model with overlapping generations of the U.S. economy. We highlight various fundamental choices in policy design including (1) the level of the initial carbon tax, (2) the growth rate of the carbon tax trajectory of over time, and (3) alternative ways for revenue recycling. Without revenue recycling, we find that generations born before the tax is introduced experience smaller welfare losses, or even gain, relative to future generations. For suffciently low growth rates of the tax trajectory, the impacts for distant future generations decrease over time. For future generations born after the introduction of the tax, the negative welfare impacts are the smallest (largest) when revenues are recycled through lowering pre-existing capital income taxes (through per-capita lump-sum rebates). For generations born before the tax is introduced, we find that lump-sum rebates favor very old generations and labor (capital) income tax recycling favors very young generations (generations of intermediate age).

Keywords: Carbon tax; Green Tax Reform; Intergenerational Incidence; Distributional Impacts; Overlapping Generations; Climate Policy (search for similar items in EconPapers)
JEL-codes: C68 D91 H23 Q43 Q52 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2018-03
New Economics Papers: this item is included in nep-dge, nep-ene, nep-env, nep-lab and nep-pbe
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: THE INTERGENERATIONAL INCIDENCE OF GREEN TAX REFORM (2018)
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