The Social Aversion to Intergenerational Inequality and the Recycling of a Carbon Tax

Redistributing the income of a carbon tax impacts the economic activity and the intergenerational inequality, which both influence the intertemporal social welfare. Thus the way a social planner recycles a carbon tax is influenced by its degree of aversion to intergenerational inequality. This article analyses the effect of social aversion to intergenerational inequality on the social choice as concerns implementing and redistributing a carbon tax. It relies on a detailed computable general equilibrium model with overlapping generations and an energy module, with a parameterisation on empirical data. We use two types of social welfare functionals which both incorporate a variable parameter measuring the degree of aversion of the social planner to intergenerational inequality. Results suggest that the social planner recycles a carbon tax through higher public expenditures if its aversion to intergenerational inequity is relatively high. This holds even if recycling through lower income taxes increases activity.