scholarly journals THE WELFARE CONSEQUENCES OF TAXING CARBON

2018 ◽  
Vol 09 (01) ◽  
pp. 1840013 ◽  
Author(s):  
DALE W. JORGENSON ◽  
RICHARD J. GOETTLE ◽  
MUN S. HO ◽  
PETER J. WILCOXEN
Keyword(s):  
Carbon Tax ◽  
Capital Formation ◽  
Welfare Loss ◽  
Emissions Reductions ◽  
Policy Makers ◽  
Revenue Recycling ◽  
Lump Sum ◽  
Labor Tax ◽  
Capital Tax ◽  
Carbon Taxation

For EMF 32, we applied a new version of our Intertemporal General Equilibrium Model (IGEM) based on the North American Industry Classification System (NAICS). We simulated the impacts arising from the Energy Modeling Forum’s broad range of carbon taxes under three revenue recycling options — lump sum redistributions, capital tax reductions, and labor tax cuts. We examined their consequences for industry prices and quantities, for the overall economy, and for the welfare of households, individuals, and society, the latter in terms of efficiency and equity. We rank recycling mechanisms from most to least favorable in terms of the magnitudes of their impacts on net social welfare — efficiency net of equity — recognizing that other objectives may be more important to policy makers and the public. Finally, we and the EMF 32 effort focus only on the economic effects of carbon taxation and revenue recycling; the environmental benefits arising from emissions reductions are not within our scope of study. We find CO2 emissions abatement to be invariant to the chosen recycling scheme. This means that policy makers need not compromise their environmental objectives when designing carbon tax swap options. We also find additional emissions reductions beyond the scope of coverage and points of taxation. Reducing capital taxes promotes new saving, investment and capital formation and is the most favorable recycling mechanism. In 2010 dollars, the welfare loss per ton abated ranges from $0.19 to $3.90 depending on the path of carbon prices. Reducing labor taxes promotes consumption and work through real-wage incentives and is the next most favorable recycling scheme. Here, the welfare loss per ton abated ranges from $11.09 to $16.49 depending on the carbon tax trajectory. Lump sum redistribution of carbon tax revenues is the least favorable recycling option. It incentivizes neither capital nor labor. Consequently, the damages to the economy and welfare are the greatest among the three schemes. With lump sum recycling, the welfare loss per ton abated ranges from $37.15 to $43.61 as carbon taxation becomes more aggressive. While this ranking is common among the participating EMF 32 models, the spread in our results is the greatest in comparison which we attribute to the substitution possibilities inherent in IGEM’s econometrics, the absence of barriers to factor mobility, and likely differences in the manner in which tax incentives are structured. We find welfare gains are possible under capital and labor tax recycling when emissions accounting is viewed from a top-down rather than a bottom-up perspective and carbon pricing is at an economy-wide average. However, these gains occur at the expense of abatement. We find capital tax recycling to be regressive while labor tax recycling is progressive as is redistribution through lump sums. Moreover, we find that the lump sum mechanism provides the best means for sheltering the poorest from the welfare consequences of carbon taxation. Thus, promoting capital formation is the best use of carbon tax revenues in terms of reducing the magnitudes of welfare losses while the lump sum and labor tax options are the best uses for reducing inequality.

scholarly journals U.S. CARBON TAX SCENARIOS AND BIOENERGY

2018 ◽  
Vol 09 (01) ◽  
pp. 1840010 ◽  
Author(s):  
RONALD D. SANDS
Keyword(s):  
Carbon Tax ◽  
Tax Revenue ◽  
Welfare Costs ◽  
Revenue Recycling ◽  
Tax Revenues ◽  
Lump Sum ◽  
Labor Tax ◽  
Capital Tax ◽  
Emf Model ◽  
And Storage

This paper documents application of the Future Agricultural Resources Model (FARM) to stylized carbon tax scenarios specified by the Stanford Energy Modeling Forum (EMF). Model results show that the method of tax revenue recycling makes a difference. Either labor-tax, or capital-tax, recycling can reduce the welfare cost of a carbon tax policy relative to lump sum recycling. Of the two tax recycling options, reducing capital taxes provides the greater reduction in welfare costs. However, carbon tax revenues decline with stringent carbon dioxide (CO2) emission targets and the availability of a negative-emissions technology such as bio-electricity with CO2 capture and storage (BECCS). As BECCS expands, net carbon tax revenues peak and decline due to an offsetting subsidy for carbon sequestration, limiting the potential for labor- or capital-tax recycling to reduce welfare costs of a climate policy.

scholarly journals Distributional effects of carbon taxation in passenger transport with lump-sum offset: low income households, retirees and families would benefit in Germany

2020 ◽  
Vol 12 (1) ◽  
Author(s):  
Christine Eisenmann ◽  
Felix Steck ◽  
Lars Hedemann ◽  
Barbara Lenz ◽  
Florian Koller
Keyword(s):  
Low Income ◽  
Carbon Tax ◽  
Transport Sector ◽  
Passenger Transport ◽  
Data Set ◽  
Distributional Effects ◽  
Lump Sum ◽  
Carbon Taxation ◽  
Taxation Scheme ◽  
Low Income Households

Abstract Background The introduction of a carbon tax on passenger transport is currently being discussed in Germany. Various stakeholders favour a consumption-based, revenue-neutral carbon tax with a uniform lump-sum offset for private households and a tax rate of 40 € per ton of CO2. Objective In this study, we examine the distributional effects of carbon taxation for the German passenger transport sector under the assumption of the proposed tax model. We discuss as to what extent which socioeconomic groups would be burdened and who might even benefit from carbon taxation. To answer these questions we use a uniquely modelled data set that encompasses all forms of passenger transport (i.e. in Germany and abroad) of the German resident population over 1 year. The national household travel survey Mobility in Germany 2017 is the basis of the microscopic data set. We derive annual CO2 emissions and carbon tax burdens for various population groups using the data on passenger transport, as well as specific emission factors. Results Results show that low income households, retirees, single parents and family households with two or more children would benefit from the proposed carbon taxation scheme due to below-average emissions per person; in contrast, working age households without children and car owners with heavy car use would be burdened. Our results are of particular relevance to transport researchers, transport politicians and decision makers as a basis for designing, developing and introducing a carbon taxation scheme.

scholarly journals An evaluation of the revenue side as a source of fiscal consolidation in high debt economies

2014 ◽  
Vol 41 (6) ◽  
pp. 771-788
Author(s):  
Ritwik Banerjee
Keyword(s):  
General Equilibrium ◽  
Tax Rates ◽  
Consumption Tax ◽  
Policy Makers ◽  
Revenue Generation ◽  
Content Type ◽  
Tax Rate ◽  
Labor Tax ◽  
Capital Tax ◽  
European Economies

Purpose – Unsustainable levels of debt in some European economies are causing enormous strain in the Euro area. Successful debt consolidation in high-debt economies is the single most important objective for the European policy makers. The paper aims to discuss these issues. Design/methodology/approach – The author uses a dynamic general equilibrium closed economy model to compute the dynamic Laffer curves for Portugal, Ireland, Greece and Spain for different class of taxes. The general equilibrium effects of the interaction of labor tax, consumption tax and capital tax is demonstrated. Findings – Location of each economy on its Laffer curve suggests that there exists a scope for considerable revenue generation by raising consumption and labor tax rates but no such possibilities exist for capital tax rate. Thus revenue generation with certain tax rates as instruments, holds key to successful and sustained debt reduction. Originality/value – This to the best of knowledge is one of the first papers which looks closely at the tax revenue – tax rate panel for the major deeply indebted European economies.

scholarly journals THE IMPACT OF CARBON TAXATION AND REVENUE RECYCLING ON U.S. INDUSTRIES

2018 ◽  
Vol 09 (01) ◽  
pp. 1840005 ◽  
Author(s):  
NICK MACALUSO ◽  
SUGANDHA TULADHAR ◽  
JARED WOOLLACOTT ◽  
JAMES R. MCFARLAND ◽  
JARED CREASON ◽  
...  
Keyword(s):  
Carbon Tax ◽  
The United States ◽  
Cross Model ◽  
Qualitative And Quantitative ◽  
Revenue Recycling ◽  
Sectoral Output ◽  
United States Economy ◽  
Production And Consumption ◽  
Carbon Taxation ◽  
The Impact

This paper provides a detailed, cross-model analysis and discussion of the implications of carbon tax scenarios on changes in sectoral output, energy production and consumption and the competitiveness of the United States’ economy. Our analysis focuses on the broad patterns apparent across models in both qualitative and quantitative terms at the sector level, with a focus on energy-intensive, trade-exposed sectors. We identify how variations in carbon tax trajectories and different options for using the revenue from the tax drive these results.

scholarly journals HOUSEHOLD DISTRIBUTIONAL AND REVENUE RECYCLING EFFECTS OF THE CARBON PRICE IN AUSTRALIA

2015 ◽  
Vol 06 (03) ◽  
pp. 1550012 ◽  
Author(s):  
DISNA SAJEEWANI ◽  
MAHINDA SIRIWARDANA ◽  
JUDITH MCNEILL
Keyword(s):  
Low Income ◽  
Computable General Equilibrium ◽  
Carbon Tax ◽  
Carbon Price ◽  
Computable General Equilibrium Model ◽  
Party Leader ◽  
Household Level ◽  
Revenue Recycling ◽  
Lump Sum ◽  
Income Groups

The Australian Government introduced a carbon tax from 1 July 2012. The then opposition party leader, now Prime Minister, introduced legislation to repeal the tax. Amongst the many issues being debated is that of the incidence of the tax. In this study, we explore household consumption and income changes arising from a A$23 carbon price employing a computable general equilibrium model (entitled A3E-G). The model has been calibrated using a social accounting matrix database of Australia with 10 household income groups. This carbon price generates A$6.39 billion revenue while reducing Australia's carbon emissions by 11%. The empirical evidence suggests household level impacts range from proportional to mildly progressive tax incidence. In this study, we propose four revenue recycling options to overcome any undesirable distributional effects from the carbon price. Results indicate that revenue recycling through income tax reductions and uniform lump sum transfers improves post tax income levels and welfare towards middle and high income groups. A nonuniform lump sum transferring option favors low income households. Uniform reductions in commodity tax rates are not found to be welfare improving but we find positive impacts on export competitiveness from this option.

scholarly journals An Assessment of Japanese Carbon Tax Reform Using the E3MG Econometric Model

2012 ◽  
Vol 2012 ◽  
pp. 1-9 ◽  
Author(s):  
Soocheol Lee ◽  
Hector Pollitt ◽  
Kazuhiro Ueta
Keyword(s):  
Tax Reform ◽  
Econometric Model ◽  
Carbon Tax ◽  
Positive Outcome ◽  
Economic Benefits ◽  
Tax Rates ◽  
Revenue Recycling ◽  
University Of Cambridge ◽  
Carbon Taxation ◽  
The University

This paper analyses the potential economic and environmental effects of carbon taxation in Japan using the E3MG model, a global macroeconometric model constructed by the University of Cambridge and Cambridge Econometrics. The paper approaches the issues by considering first the impacts of the carbon tax in Japan introduced in 2012 and then the measures necessary to reduce Japan’s emissions in line with its Copenhagen pledge of −25% compared to 1990 levels. The results from the model suggest that FY2012 Tax Reform has only a small impact on emission levels and no significant impact on GDP and employment. The potential costs of reducing emissions to meet the 25% reduction target for 2020 are quite modest, but noticeable. GDP falls by around 1.2% compared to the baseline and employment by 0.4% compared to the baseline. But this could be offset, with some potential economic benefits, if revenues are recycled efficiently. This paper considers two revenue recycling scenarios. The most positive outcome is if revenues are used both to reduce income tax rates and to increase investment in energy efficiency. This paper shows there could be double dividend effects, if Carbon Tax Reform is properly designed.

scholarly journals Could revenue recycling make effective carbon taxation politically feasible?

2019 ◽  
Vol 5 (9) ◽  
pp. eaax3323 ◽  
Author(s):  
Liam F. Beiser-McGrath ◽  
Thomas Bernauer
Keyword(s):  
Carbon Tax ◽  
Public Support ◽  
The United States ◽  
Policy Instrument ◽  
Industrialized Countries ◽  
Carbon Taxes ◽  
Playing Field ◽  
Revenue Recycling ◽  
Carbon Taxation ◽  
Global Energy Supply

Carbon taxes are widely regarded as a potentially effective and economically efficient policy instrument for decarbonizing the global energy supply and thus limiting global warming. The main obstacle is political feasibility because of opposition from citizens and industry. Earmarking revenues from carbon taxation for spending that benefits citizens (i.e., revenue recycling) might help policy makers escape this political impasse. On the basis of choice experiments with representative samples of citizens in Germany and the United States, we examine whether revenue recycling could mitigate two key obstacles to achieving sufficient public support for carbon taxes: (i) declines in support as taxation levels increase and (ii) concerns over the international economic level playing field. For both countries, we find that revenue recycling could help achieve majority support for carbon tax levels of up to $50 to $70 per metric ton of carbon, but only if industrialized countries join forces and adopt similar carbon taxes.

scholarly journals Cost distribution and equity of climate policy in Switzerland

2019 ◽  
Vol 155 (1) ◽  
Author(s):  
Florian Landis
Keyword(s):  
Climate Policy ◽  
Computable General Equilibrium ◽  
Carbon Tax ◽  
Computable General Equilibrium Model ◽  
Efficient Manner ◽  
Revenue Recycling ◽  
Lump Sum ◽  
Cost Distribution ◽  
Policy Cost ◽  
Cost Efficient

Abstract Swiss targets for climate policy require significant reductions of emissions by 2050. While such reductions can be achieved in a cost-efficient manner by employing taxes on greenhouse gas emissions, such taxes tend to lead to a regressive distribution of policy cost among households. To counteract such a regressive outcome, tax revenue may be recycled in a progressive way. This paper uses a computable general equilibrium model coupled with a microsimulation of household income and expenditure to examine the policy cost of different carbon tax policies and their distribution across households. I find that in the absence of revenue recycling, emission taxation leads to a regressive distribution of policy cost. I analyze different revenue recycling schemes (per-capita lump-sum transfers, reductions in labor taxation, and reductions in VAT taxation of necessary commodities) and their ability to avoid regressive outcomes.

scholarly journals THE INTERGENERATIONAL INCIDENCE OF GREEN TAX REFORM

2018 ◽  
Vol 09 (01) ◽  
pp. 1840007 ◽  
Author(s):  
SEBASTIAN RAUSCH ◽  
HIDEMICHI YONEZAWA
Keyword(s):  
Policy Design ◽  
Carbon Tax ◽  
Future Generations ◽  
Capital Income ◽  
Green Tax Reform ◽  
Revenue Recycling ◽  
Lump Sum ◽  
Welfare Losses ◽  
Initial Carbon ◽  
Over Time

We examine the lifetime incidence and intergenerational distributional effects of an economy-wide carbon tax swap using a numerical dynamic general equilibrium model with overlapping generations of the U.S. economy. We highlight various fundamental choices in policy design including (1) the level of the initial carbon tax, (2) the growth rate of the carbon tax trajectory of over time, and (3) alternative ways for revenue recycling. Without revenue recycling, we find that generations born before the tax is introduced experience smaller welfare losses, or even gain, relative to future generations. For sufficiently low growth rates of the tax trajectory, the impacts for distant future generations decrease over time. For future generations born after the introduction of the tax, the negative welfare impacts are the smallest (largest) when revenues are recycled through lowering pre-existing capital income taxes (through per-capita lump-sum rebates). For generations born before the tax is introduced, we find that lump-sum rebates favor very old generations and labor (capital) income tax recycling favors very young generations (generations of intermediate age).

Introducing Carbon Taxes in Russia: The Relevance of Tax-Interaction Effects

2014 ◽  
Vol 14 (3) ◽  
pp. 723-754 ◽  
Author(s):  
Anton Orlov ◽  
Harald Grethe
Keyword(s):  
Carbon Tax ◽  
International Mobility ◽  
Carbon Taxes ◽  
Welfare Gains ◽  
Lump Sum ◽  
Corrective Effect ◽  
Carbon Taxation ◽  
Distortionary Taxes ◽  
Tax Interaction ◽  
The Cost

Abstract The theoretical literature on the double-dividend concept is mainly focused on pre-existing distortionary taxes in the labour and capital markets; the relevance of interactions with other taxes is often neglected. Using an analytical model and a numerical general equilibrium model, we analyse the welfare effects of carbon taxes and their interaction with other taxes applied in Russia. We find that substituting carbon taxes for labour taxes in Russia can substantially reduce the cost of carbon taxation compared to returning carbon tax revenues to households in lump-sum form and can even result in welfare gains in Russia. In conclusion, introducing carbon taxes has an indirect corrective effect with respect to the distorting effect of export taxation on energy resources. Furthermore, welfare costs of carbon taxation can be significant under the assumption of perfect international mobility of capital. Nevertheless, the cost can be more than compensated in case of a high carbon trade price.

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