The social cost of carbon and inequality: When local redistribution shapes global carbon prices

The social cost of carbon is a central metric for optimal carbon prices. Previous literature shows that inequality significantly influences the social cost of carbon, but mostly omits heterogeneity below the national level. We present an optimal taxation model of the social cost of carbon that accounts for inequality between and within countries. We find that climate and distributional policy can generally not be separated. If only one country does not compensate low-income households for disproportionate damages, the social cost of carbon tends to increase globally. Optimal carbon prices remain roughly unchanged if national redistribution leaves inequality between households unaffected by climate change and if the utility of households is approximately logarithmic in consumption

How to make a carbon tax reform progressive: The role of subsistence consumption

A major obstacle for introducing carbon pricing are its distributional implications: climate policy is believed to be regressive. We illuminate the role of carbon-intensive subsistence consumption for the prospect of making carbon pricing progressive. The distributional impacts of a carbon tax reform depend on the revenue recycling options: we prove that lump-sum transfers proportional to income and linear income tax cuts make the reform regressive and that this is due only to subsistence consumption. By contrast, returning the revenue as uniform lump-sum transfers renders the carbon tax reform progressive

How to make a carbon tax reform progressive: The role of subsistence consumption

This letter analyzes the distributional effects of a carbon tax reform when households must consume carbon-intensive goods above a subsistence level. The reform is progressive if revenues are recycled as uniform lump-sum transfers, in other cases it is regressive

Environmental taxation, inequality and Engel’s law : the double dividend of redistribution

Empirical evidence shows that low-income households spend a high share of their income on pollution-intensive goods. This fuels the concern that an environmental tax reform could be regressive. We employ a framework which accounts for the distributional effect of environmental taxes and the recycling of the revenues on both households and firms to quantify changes in the optimal tax structure and the equity impacts of an environmental tax reform. We characterize when an optimal environmental tax reform does not increase inequality, even if the tax system before the reform is optimal from a non-environmental point of view. If the tax system before the reform is calibrated to stylized data—and is thus non-optimal—we find that there is a large scope for inequality reduction, even if the government is restricted in its recycling options

Productivity Drivers: Empirical Evidence on the Role of Digital Capital, FDI and Integration

There are marked differences in productivity dynamics between countries as well as industries, often leading to substantial performance gaps, such as the gap in labour productivity between the EU and the US. In this article, we use the 2019 release of the EU KLEMS database to look into the drivers of productivity. In particular, we analyse how different types of capital (including intangible capital), foreign direct investment, integration into global value chains and EU integration affect labour productivity. Key findings are that intangible Information and Communication Technology (ICT) capital is a strong driver of productivity both at sectoral and aggregate levels, even more so than tangible ICT capital. Furthermore, backward global value chain integration and EU integration are positively associated with labour productivity. Contrary to expectations, we do not find evidence of a productivity-enhancing effect of foreign direct investment. Finally, we estimate by how much the productivity gap between the EU and the US could be reduced through different ICT investment policies.JRC.B.5-Circular Economy and Industrial Leadershi

Making Carbon Pricing Work

Carbon-pricing initiatives are spreading at an unprecedented rate, but a considerable gap remains between actual prices and those required to achieve ambitious climate change mitigation. This perspective shows that much of this gap could be closed by enhancing the public’s acceptance of carbon pricing through the effective use of the substantial revenues raised. We synthesize findings regarding the use of carbon revenues both from recent behavioral and political studies as well as from economic analyses of equity and efficiency. We then compare real-world carbon pricing regimes with insights derived from theory. We find that uniform lump-sum recycling of carbon revenues to citizens is favored among behavioral and political studies that emphasize the importance of distributional fairness, revenue salience, political trust, and policy stability amid partisan changes in government. It is also successfully employed in several real-world recycling schemes, although alternative uses of revenues such as green spending may be appropriate in different national contexts

Making Carbon Pricing Work

Carbon-pricing initiatives are spreading at an unprecedented rate, but a considerable gap remains between actual prices and those required to achieve ambitious climate change mitigation. This perspective shows that much of this gap could be closed by enhancing the public’s acceptance of carbon pricing through the effective use of the substantial revenues raised. We synthesize findings regarding the use of carbon revenues both from recent behavioral and political studies as well as from economic analyses of equity and efficiency. We then compare real-world carbon pricing regimes with insights derived from theory. We find that uniform lump-sum recycling of carbon revenues to citizens is favored among behavioral and political studies that emphasize the importance of distributional fairness, revenue salience, political trust, and policy stability amid partisan changes in government. It is also successfully employed in several real-world recycling schemes, although alternative uses of revenues such as green spending may be appropriate in different national contexts

Toward Optimal Meat Pricing: Is It Time to Tax Meat Consumption?

Livestock is known to contribute significantly to climate change and to negatively impact global nitrogen cycles and biodiversity. However, there has been little research on economically efficient policies for regulating meat production and consumption. In the absence of first-best policy instruments for the livestock sector, second-best consumption taxes on meat can address multiple environmental externalities simultaneously as well as improve diet-related public health. In this article, we review the empirical evidence on the social costs of meat and examine the rationales for taxing meat consumption in high-income countries. We approach these issues from the perspective of public, behavioral, and welfare economics, focusing in particular on (1) the interaction of multiple environmental externalities of meat production and consumption, (2) “alternative protein” technologies, (3) adverse effects on human health, (4) animal welfare, and (5) distributional effects of meat taxation. We present preliminary estimates of the environmental social costs associated with meat consumption and find that meat is significantly underpriced. We conclude by identifying several directions for future research on optimal meat taxation