Carbon taxes: efficient, inequitable, disliked?

Carbon taxes tend to have low acceptance rates. One frequent concern is that they could have a regressive effect on income distribution. We investigate how social cushioning and other revenue recycling options affect income distribution and efficiency, and how they can be defined such that public acceptance is maximized. We base the analysis on simulations with the general equilibrium model GENESwIS and on a representative national survey with a total of 1’200 respondents. We find that making distributional effects salient generates an important demand for progressive designs. According to our simulations, reserving a share of the revenues for lump-sum recycling is sufficient to address social concerns. On the other hand, recycling through tax cuts is economically more efficient. As the latter argument is understood by few, environmental motivation still remains the much more prevalent argument for environmental tax reform.

Presented at:
CER-CEPE Friday Seminar at ETH Zürich, Zürich, Switzerland, December 9, 2016

 Record created 2017-03-07, last modified 2018-09-13

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