The Distributional Effects of a Carbon Tax: The Role of Income Inequality | Giles Atkinson and Julius Andersson

Giles Atkinson and Julius Andersson will be discussing the study: The Distributional Effects of a Carbon Tax: The Role of Income Inequality.

Abstract

This empirical study is the first to analyse the distributional effects of a carbon tax over time. The results show that the Swedish carbon tax on transport fuel is regressive between 1999 to 2012 when measured against annual income, but progressive when using lifetime income. The trend over time, however, is towards an increase in regressivity, which is highly correlated with an increase in income inequality. Analysis of the determinants of tax incidence lends support to our hypothesis that for necessities – goods with an income elasticity below one – rising income inequality increases regressivity. To mitigate climate change, a carbon tax should be applied to goods that typically are necessities: transport fuel, food, heating and electricity. Carbon taxation will thus likely be regressive in high-income countries, the more so the more unequal the distribution of income.