The Impact of a Carbon Tax on Inequality

By A. Fremstad, M. Paul. Ecological Economics, 2019

181 citations recorded by the source corpus.

Climate change and economic inequality are inextricably linked. Despite widespread agreement among researchers and policymakers that a carbon tax is the most efficient mechanism to curb greenhouse gas emissions, such a tax exacerbates inequality since low-income households spend a greater share of their income on carbon-intensive goods. Using Input-Output tables and detailed expenditure data for the United States, we estimate households' carbon footprints and examine the impact of a revenue-neutral tax of $50 per ton of CO2 on multiple forms of inequality. Devoting carbon tax revenue to fund a carbon dividend makes the policy progressive, minimizes redistribution among households of similar means, mitigates group-based inequalities, and benefits 56% of people, including 84% in the bottom half of the distribution. While some researchers have dismissed dividends on efficiency grounds, we show that the double dividend typically associated with labor tax cuts is insufficient to protect the purchasing power of a majority of Americans.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/0e57a89a53689a08e38b1ecad75566be257ccb68

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Citations in the corpus

Low‐carbon transition risks for finance (2020, background): “In such a case, Fremstad and Paul (2019) estimate that US households in the poorest deciles would incur 50% more additional costs as a fraction of their expenditure than households in the highest decile.”
Combining climate, economic, and social policy builds public support for climate action in the US (2020, background): “These figures correspond to carbon prices of $50, $75, and $15 per tonne, respectively (Fremstad and Paul 2019).”