Working Paper: NBER ID: w16768
Authors: Don Fullerton; Garth Heutel; Gilbert E. Metcalf
Abstract: We analyze both the uses side and the sources side incidence of domestic climate policy using an analytical general equilibrium model, taking into account the degree of government program indexing. When transfer programs such as Social Security are explicitly indexed to inflation, higher energy prices automatically lead to cost-of-living adjustments for recipients. We show results with no indexing, 100 percent indexing, and partial indexing based on our analysis of actual transfer programs. When households are classified by annual income, the indexing of U.S. transfers is not enough to offset the regressive uses side, but when they are classified by annual expenditures as a proxy for permanent income, transfer indexing does offset regressivity across the lowest income groups.
Keywords: carbon pricing; government transfers; progressivity; regressivity; climate policy
JEL Codes: H23; H55; Q43; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher energy prices (Q41) | Increased costs for households (D19) |
| Carbon pricing (Q58) | Higher energy prices (Q41) |
| Carbon pricing (Q58) | Increased costs for low-income households (H31) |
| Indexing of transfers (H87) | Mitigation of regressivity of carbon pricing (H23) |
| 100% indexing (C43) | Alleviation of burden on low-income households (H53) |
| Classification by annual expenditures (H50) | Different assessment of carbon pricing's regressivity (H23) |