Work

Effects of Carbon Taxes in an Economy with Prior Tax Distortions: An Intertemporal General Equilibrium Analysis

Year: 1995

Type: article

Abstract: This paper analyzes the costs of carbon taxes in a model that recognizes interactions between this tax and pre-existing taxes. First we examine the extent to which costs of a U.S. carbon tax are reduced when its revenues finance cuts in income taxes. Such use of revenues significantly reduces, but does not eliminate, the overall policy costs. The positive overall costs reflect the carbon tax′s focus on intermediate inputs and its relatively narrow base in comparison with income taxes. We also examine the sensitivity of the carbon tax′s costs to the level of pre-existing taxes. For any given use of revenues, welfare costs rise significantly with pre-existing tax rates, indicating that models disregarding pre-existing taxes may substantially understate the costs of new environmental tax initiatives.

Source: Journal of Environmental Economics and Management

DOI: 10.1006/jeem.1995.1047

Author: Lawrence H. Goulder

Institutions: National Bureau of Economic Research, Resources For The Future, Stanford University

Language: English

Topic: Climate Change Policy and Economics

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: hybrid

Estimated APC paid: $3,620