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The Initial Incidence of a Carbon Tax Across Income Groups

Author

Listed:
  • Roberton C. Williams III
  • Hal Gordon
  • Dallas Burtraw
  • Jared C. Carbone
  • Richard D. Morgenstern

Abstract

Carbon taxes efficiently reduce greenhouse gas emissions, but are criticized as regressive. This paper links dynamic overlapping-generation and micro-simulation models of the United States to estimate the initial incidence of carbon taxes. We find that while carbon taxes are regressive, incidence depends much more on how carbon tax revenue is used. Recycling revenues to cut capital taxes is efficient but exacerbates regressivity. Lump sum rebates are less efficient, but much more progressive, benefitting the three lower income quintiles even when ignoring environmental benefits. A labor tax swap represents an intermediate option, as it is more progressive than a capital tax swap and more efficient than a rebate.

Suggested Citation

  • Roberton C. Williams III & Hal Gordon & Dallas Burtraw & Jared C. Carbone & Richard D. Morgenstern, 2015. "The Initial Incidence of a Carbon Tax Across Income Groups," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(1), pages 195-214, March.
    • Handle: RePEc:ntj:journl:v:68:y:2015:i:1:p:195-214
    DOI: 10.17310/ntj.2015.1.09
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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