Working Paper: NBER ID: w16101
Authors: Gilbert E. Metcalf; Aparna Mathur; Kevin A. Hassett
Abstract: This paper provides a simple analytic approach for measuring the burden of carbon pricing that does not require sophisticated and numerically intensive economic models but which is not limited to restrictive assumptions of forward shifting of carbon prices. We also show how to adjust for the capital income bias contained in the Consumer Expenditure Survey, a bias towards regressivity in carbon pricing due to underreporting of capital income in higher income deciles in the Survey. \n \nMany distributional analyses of carbon pricing focus on the uses-side incidence of carbon pricing. This is the differential burden resulting from heterogeneity in consumption across households. Once one allows for sources-side incidence (i.e. differential impacts of changes in real factor prices), carbon policies look more progressive. Perhaps more important than the findings from any one scenario, our results on the progressivity of the leading cap and trade proposals are robust to the assumptions made on the relative importance of uses and sources side heterogeneity.
Keywords: carbon pricing; climate policy; distributional impacts; cap and trade
JEL Codes: H22; H23; Q48; Q54; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| carbon pricing (Q58) | burden on households (D19) |
| lower-income households (R20) | larger percentage of income as burden (H22) |
| sources-side impacts (F69) | regressivity of carbon pricing decreases (H23) |
| households sorted by consumption (D10) | burden becomes less regressive (H22) |
| progressivity of carbon pricing policies (Q58) | change based on assumptions about shifting of carbon prices (Q47) |