Working Paper: NBER ID: w15788
Authors: Don Fullerton; Garth Heutel
Abstract: Using an analytical general equilibrium model, we find closed form solutions for the effect of energy policy on factor prices and output prices. We calibrate the model to the US economy, and we consider a tax on carbon. By looking at expenditure and income patterns across household groups, we quantify the uses-side and sources-side incidence of the tax. When households are categorized either by annual income or by total annual consumption as a proxy for permanent income, the uses-side incidence is regressive. This result is robust to sensitivity analysis over various parameter values. The sources-side incidence is also regressive, but this result is sensitive to parameter values. Incidence results across regions are also presented.
Keywords: carbon tax; energy policy; general equilibrium; incidence analysis; factor prices
JEL Codes: H23; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| carbon tax (H23) | uses side incidence (C20) |
| uses side incidence (C20) | burden on poorer households (H22) |
| carbon tax (H23) | sources side incidence (C29) |
| sources side incidence (C29) | burden on income groups (H22) |
| elasticities of substitution in production (D24) | sources side incidence (C29) |
| carbon tax (H23) | economic variables (P42) |