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How to make a carbon tax reform progressive: The role of subsistence consumption

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  • Klenert, David
  • Mattauch, Linus

Abstract

A major obstacle for introducing carbon pricing are its distributional implications: climate policy is believed to be regressive. We illuminate the role of carbon-intensive subsistence consumption for the prospect of making carbon pricing progressive. The distributional impacts of a carbon tax reform depend on the revenue recycling options: we prove that lump-sum transfers proportional to income and linear income tax cuts make the reform regressive and that this is due only to subsistence consumption. By contrast, returning the revenue as uniform lump-sum transfers renders the carbon tax reform progressive.

Suggested Citation

  • Klenert, David & Mattauch, Linus, 2015. "How to make a carbon tax reform progressive: The role of subsistence consumption," MPRA Paper 65919, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:65919
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    References listed on IDEAS

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    More about this item

    Keywords

    carbon tax reform; distribution; revenue recycling; inequality; non-homothetic preferences;
    All these keywords.

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D60 - Microeconomics - - Welfare Economics - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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