Who Pays a Price on Carbon?
- 1.7k Downloads
We use the 2003 Consumer Expenditure Survey and emissions estimates from an input-output model based on the 1997 US economy to estimate the incidence of a price on carbon induced by a cap-and-trade program or carbon tax in the context of the US. We present results on how much different income deciles pay for a carbon tax as well as which industries see the largest increase in costs due to a carbon tax. We illustrate the main determinant of the regressivity: consumption patterns for energy-intensive goods. Furthermore, on a per-capita basis a carbon price is much more regressive than calculations at the household level. We discuss policy options to offset the adverse distributional effects of a carbon emissions policy.
KeywordsDistributional incidence Carbon tax Tradable permits
JEL ClassificationQ52 Q58 H22
We would like to thank Don Fullerton, Josh Graff-Zivin, Matthew Kahn, Gilbert Metcalf, Peter Reiss, MargaretWalls, seminar and conference participants, and anonymous referees for comments. We are responsible for all errors. Grainger acknowledges financial support from the National Science Foundation, Grant No. 0114437.
This article is distributed under the terms of the Creative Commons Attribution Noncommercial License which permits any noncommercial use, distribution,and reproduction in any medium, provided the original author(s) and source are credited.
- Andrew C, Gerald P (2007) Who pays taxes and who receives government spending? An analysis of federal, state and local tax and spending distributions, 1991–2004. http://www.taxfoundation.org/files/wp1.pdf.
- Boyce JK, Riddle ME (2009) Cap and dividend: a state-by-state analysis, Political Economy Research Institute, University of Massachusetts, Amherst. http://e3network.org/papers/CAP_DIVIDEND_states.pdf
- Carnegie Mellon University Green Design Institute (2008) Economic Input-Output Life Cycle Assessment (EIO-LCA) model [Internet], Available from: http://www.eiolca.net/. Accessed 19 Jul 2008
- Caspersen Erik, Metcalf Gilbert E (1994) Is a value added tax regressive? Annual versus lifetime incidence measures. Natl Tax J 47: 731–746Google Scholar
- Citro CF, Michael RT (1995) Measuring poverty: a new approach. National Academy Press, WashingtonGoogle Scholar
- Congressional Budget Office (CBO), Letter from David Elmendorf (CBO Director) to Rep. David Camp (House Ways and Means) dated 19 June 2009. http://www.cbo.gov/ftpdocs/103xx/doc10327/06-19-CapAndTradeCosts.pdf
- Consumer Expenditure Survey (2006) Microdata Extracts, NBER. Available http://www.nber.org/data/ces_cbo.html
- Cutler DM, Katz LF (1992) Rising inequality? Changes in the distribution of income and consumption in the 1980’s. Am Econ Rev 82(2)Google Scholar
- Dallas B, Rich S, Margaret W (2008) The incidence of US climate policy: where you stand depends on where you sit. Discussion Paper 08–28, Resources for the Future, Washington, DCGoogle Scholar
- Don F, Metcalf GE (2002) Tax incidence handbook of public economics. In: Auerbach AJ, Feldstein M (ed) Elsvier, Amsterdam, pp 1788–1839Google Scholar
- Environmental Protection Agency (2009) EPA Economic Analysis of the American Clean Energy and Security Act of 2009. http://energycommerce.house.gov/Press_111/20090623/hr2454_epasummary.pdf. Accessed 31 Aug 2009
- Fullerton D (2009) Distributional effects of environmental and energy policy: an introduction. In: Fullerton D (eds) Distributional effects of environmental and energy policy. Ashgate, AldershotGoogle Scholar
- Fullerton D, Rogers DL (1993) Who bears the lifetime tax burden?. Brookings Institution, WashingtonGoogle Scholar
- Hassett KA, Aparna M, Metcalf GE (2009) The incidence of a US carbon tax: a lifetime and regional analysis. Energy J 30(2)Google Scholar
- Hendrickson CT, Lave LB, Matthews HS (2006) Environmental life cycle assessment of goods and services: an input-output approach. Resources for the Future Press, WashingtonGoogle Scholar
- Leontief W (1986) Input-output economics. Oxford University Press, New YorkGoogle Scholar
- Lynn CJ, Don F, Thomas G (2000) The Progressivity of Social Security Working Paper 7520, National Bureau of Economic Research, Cambridge, MAGoogle Scholar
- Metcalf GE (1999) A distributional analysis of green tax reforms. Natl Tax J 52: 665–681Google Scholar
- Metcalf GE, Sergey P, Reilly JM, Jacoby HD, Jennifer H (2008) Analysis of US greenhouse gas tax proposals. MIT Joint Program on the Science and Policy of Global Change Report 160Google Scholar
- Paltsev S, Reilly J, Jacoby H, Gurgel A, Metcalf G, Sokolov A, Holak J (2007) Assessment of US cap-and-trade proposals. MIT CEEPR paper 07-005Google Scholar
- Parry IWH, Hilary S, Margaret W, Roberton W III (2005) The incidence of pollution control policies. RFF Discussion Paper 05-24Google Scholar
- Poterba JM (1989) Lifetime incidence and the distributional burden of excise taxes. Am Econ Review 79: 325–330Google Scholar
- US Census Bureau (2007) Current Population Survey. Annual Social and Economic Supplement. Table HINC-06. Revised August 28, 2007. Available http://pubdb3.census.gov/macro/032007/hhinc/new06_000.htm
- US EPA (2007) Inventory of US greenhouse gas emissions and sinks: 1990–2005. Available http://www.epa.gov/climatechange/emissions/downloads06/07ES.pdf