Working Paper: NBER ID: w17087
Authors: Sebastian Rausch; Gilbert E. Metcalf; John M. Reilly
Abstract: Many policies to limit greenhouse gas emissions have at their core efforts to put a price on carbon emissions. Carbon pricing impacts households both by raising the cost of carbon intensive products and by changing factor prices. A complete analysis requires taking both effects into account. The impact of carbon pricing is determined by heterogeneity in household spending patterns across income groups as well as heterogeneity in factor income patterns across income groups. It is also affected by precise formulation of the policy (how is the revenue from carbon pricing distributed) as well as the treatment of other government policies (e.g. the treatment of transfer payments). What is often neglected in analyses of policy is the heterogeneity of impacts across households even within income or regional groups. In this paper, we incorporate 15,588 households from the U.S. Consumer and Expenditure Survey data as individual agents in a comparative-static general equilibrium framework. These households are represented within the MIT USREP model, a detailed general equilibrium model of the U.S. economy. In particular, we categorize households by full household income (factor income as well as transfer income) and apply various measures of lifetime income to distinguish households that are temporarily low-income (e.g., retired households drawing down their financial assets) from permanently low-income households. We also provide detailed within-group distributional measures of burden impacts from various policy scenarios.
Keywords: carbon pricing; distributional impacts; general equilibrium; household microdata
JEL Codes: H22; 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) | costs of carbon-intensive commodities (Q02) |
| costs of carbon-intensive commodities (Q02) | households that spend a larger share of their income on these products (D12) |
| carbon pricing (Q58) | factor prices (F16) |
| factor prices (F16) | households dependent on income from factors whose prices fall relative to others (E25) |
| distribution of carbon pricing revenues (H23) | efficiency and equity of the policy (D61) |
| lifetime income measures (J17) | perceived regressivity of carbon pricing (H23) |
| spending patterns on energy (Q41) | burden on households with black heads (R20) |
| sources side impacts of carbon pricing (H23) | regressivity of uses side impacts (H23) |
| sources side impacts (F69) | overall burden across income groups (H22) |