Geography versus income: the heterogeneous effects of carbon taxation

Charles Labrousse and Yann Perdereau

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Abstract: Distributive effects of carbon taxation are key for its political acceptability. We introduce geographical heterogeneity into a calibrated dynamic general equilibrium heterogeneous-agent model, where energy is both a consumption good and an intermediate input. We evaluate the aggregate and distributive effects of carbon taxation and obtain three key results. First, the distributive effects of carbon taxation are driven by geography more than income, with rural households suffering larger welfare losses. Second, taxing households' direct emissions is regressive, while taxing firms' direct emissions is progressive. Third, we simulate various revenue-recycling policies using targeted transfers. We find that it is possible to reduce emissions and mitigate welfare losses associated with the green transition.

Keywords: Carbon taxes; Energy; Fiscal policy; Emissions; Macroeconomic effects; Inequalities; Geography (search for similar items in EconPapers)
Date: 2024-02
New Economics Papers: this item is included in nep-dge, nep-ene, nep-env and nep-pub
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Working Paper: Geography versus income: the heterogeneous effects of carbon taxation (2024)
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