NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Julie Anne Cronin

Department of the Treasury

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NBER Working Papers and Publications

March 2017Vertical and Horizontal Redistributions from a Carbon Tax and Rebate
with Don Fullerton, Steven E. Sexton: w23250
Because electricity is a higher fraction of spending for those with low income, carbon taxes are believed to be regressive. Many argue, however, that their revenues can be used to offset the regressivity. We assess these claims by employing data on 322,000 families in the U.S. Treasury’s Distribution Model to study vertical redistributions between rich and poor, as well as horizontal redistributions among families with common incomes but heterogeneous energy intensity of consumption (different home heating and cooling demands). Accounting for the statutory indexing of transfers, and measuring impacts on annual consumption as a proxy for permanent income, we find that the carbon tax burden is progressive, rising across deciles as a fraction of consumption. The rebate of revenue via transfer...
 
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