Impacts of a carbon tax across US household income groups: What are the equity-efficiency trade-offs?

By L. Goulder, Marc A. C. Hafstead, Gyuri Kim, Xianling Long. Journal of Public Economics, 2018

247 citations recorded by the source corpus.

Abstract This paper assesses the impacts across U.S. household income groups of carbon taxes of various designs. We consider both the source-side impacts (reflecting how policies affect wage, capital, and transfer incomes) as well as the use-side impacts (reflecting how policies alter the prices of goods and services purchased by households). We apply an integrated general equilibrium framework with extended measures of the source- and use-side impacts that add up to the overall welfare impact. Our results indicate that the distributional impacts depend importantly on the nature of revenue-recycling and the treatment of transfer income. In the absence of targeted compensation to achieve distributional objectives, the use-side impacts tend to be regressive while the source-side impacts are progressive, and the progressive source-side impacts tend to offset fully the regressive use-side impacts. Both impacts are considerably larger when one employs the more comprehensive welfare measures introduced in this study. The efficiency costs of targeted compensation to achieve distributional objectives depend critically on the recycling method and compensation target. These costs are an order of magnitude higher when the remaining revenues after compensation are used for corporate income tax cuts, compared with costs when remaining revenues are used other ways. Efficiency costs also rise dramatically when targeted compensation extends beyond the lowest income quintiles.

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

View Paper: https://www.semanticscholar.org/paper/6af64c087c3a1a62d5e3fc318ebe2c81bc7cd4ba

How researchers see this paper

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In Economics and Econometrics

1. Kuishuang Feng
2. Klaus Hubacek
3. Kaihui Song
4. D. Guan
5. Zhu Liu
6. G. P. Peters
7. Jing Meng
8. Edgar G. Hertwich

In Renewable Energy, Sustainability and the Environment

1. Kuishuang Feng
2. Klaus Hubacek
3. D. Guan
4. Edgar G. Hertwich
5. Zhu Liu

Citations in the corpus

• The Macroeconomic Impact of Europe’s Carbon Taxes (2020, unknown): “While different models give different results, most find very 4 modest reductions (if at all) in GDP from implementing a carbon tax.3 Goulder et al. (2019) also consider a U.S. carbon tax starting at $40 per ton and rising at 2 percent annually.”
• Household carbon inequality in the U.S. (2021, background): “households differential contributions of carbon emissions as well as vulnerability to climate change and mitigation policies (Chen and Hafstead, 2019; Goulder et al., 2019; Wang et al., 2016).”