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The Carbon Tax, Ageing and Pension Deficits

Author

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  • Frédéric Gonand

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres)

Abstract

Ageing increases the income of a carbon tax ceteris paribus since energy consumption rises with age, as macro and micro data show. Ageing also increases some public expenditures, notably those of pay-as-you-go (PAYG) pension systems. Accordingly, there may be a case for recycling a carbon tax in an ageing context so as to finance ageing-related public expenditures. This article studies the interacting effects on intergenerational equity and growth of such a recycling. It relies on a general equilibrium model with overlapping generations parameterised with empirical data. Several results emerge. Implementing a carbon tax fully recycled through higher lump-sum pensions weighs relatively more on the intertemporal welfare of young and future generations. A carbon tax fully recycled through lower social contributions financing the PAYG bolsters the wellbeing of young and future generations but weighs on the welfare of baby-boomers and older cohorts. The redistributive effects of recycling a carbon tax can depend significantly on the way used to balance the PAYG regime.

Suggested Citation

  • Frédéric Gonand, 2016. "The Carbon Tax, Ageing and Pension Deficits," Post-Print hal-01251698, HAL.
    • Handle: RePEc:hal:journl:hal-01251698
    DOI: 10.1007/s10666-015-9482-2
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    References listed on IDEAS

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    3. Klenert, David & Mattauch, Linus & Combet, Emmanuel & Edenhofer, Ottmar & Hepburn, Cameron & Rafaty, Ryan & Stern, Nicholas, 2017. "Making Carbon Pricing Work," MPRA Paper 80943, University Library of Munich, Germany.

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