Household Heterogeneity, Aggregation, and the Distributional Impacts of Environmental Taxes

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper examines how the general equilibrium incidence of an environmental tax depends on the effect of different incomes and preferences of heterogeneous households on aggregate outcomes. We develop a Harberger-type model with general forms of preferences and substitution between capital, labor, and pollution in production that captures the impact of household heterogeneity and interactions with production characteristics on the general equilibrium. We theoretically show that failing to incorporate household heterogeneity can qualitatively affect incidence. We quantitatively illustrate that this aggregation bias can be important for assessing the incidence of a carbon tax, mainly by affecting the returns to factors of production. Our findings are robust to a number of extensions including alternative revenue recycling schemes, preexisting taxes, non-separable utility in pollution, labor-leisure choice, and multiple commodities. Terms of use: Documents in EconStor may

Carbon pricing under uncertainty

“…Many studies assess empirically the distributional effects within groups and across groups of green tax reform, including how the regressivity is affected by how the revenue is recycled (e.g. Bento et al, 2009;Berry, 2019;Cronin et al, 2019;Flues & Thomas, 2015;Grainger & Kohlstad, 2010;Metcalf, 1999;Pizer & Sexton, 2019;Poterba, 1991;Rausch & Schwarz, 2016;West & Williams, 2004;Williams et al, 2015). Important is that the impact of carbon taxes on lifetime may be less regressive than on current income (e.g.…”

Intermediate input linkage and carbon leakage

“…The theoretical model of this study builds on a Harberger (1962) type general equilibrium model aimed at studying the effects of climate policies (e.g., Fullerton and Heutel, 2007; Fullerton and Monti, 2013; Lanzi and Wing, 2013; Baylis et al , 2014; Elliott and Fullerton, 2014; Rausch and Schwarz, 2016). However, these studies mainly adopt the assumption of an independent sector or vertical sectoral linkage (e.g., Bushnell and Mansur, 2011; Baylis et al 2014; Sen, 2015), and a systematic study on the effect of sectoral linkage on carbon leakage is lacking.…”

Intermediate Input Linkage and Carbon Leakage

“…The theoretical model of this study builds on Harberger (1962)-type general equilibrium model aimed to study the effects of climate policies (e.g., Fullerton and Heutel, 2007;Fullerton and Monti., 2013;Lanzi and Wing, 2013;Baylis et al, 2014;Elliott and Fullerton, 2014;Rausch and Giacomo, 2016). However, these studies mainly adopt the independent sector assumption or vertical serctoral linkage (e.g., Bushnell and Mansur, 2011;Fullerton et al, 2012;Sen, 2015), and a systematic study on the effect of sectoral linkage on carbon leakage is lacking.…”