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Brown Bag Seminar in Economics: The Distributional Effects of a Carbon Tax: The Role of Income Inequality

Welcome to Brown Bag Webinar in Economics organized by the Department of Economics, SSE. Seminar guest is Julius Andersson (SITE) presenting working paper "The Distributional Effects of a Carbon Tax: The Role of Income Inequality". This is an online seminar which will take place via Zoom.

Julius Andersson, SITE

The Distributional Effects of a Carbon Tax: The Role of Income Inequality

Julius Andersson conducts research in environmental and public economics, studying the effects of climate change mitigation policies in practice. He holds a PhD from LSE and is currently a postdoctoral researcher at the Stockholm Institute of Transition Economics.

ABSTRACT: This paper addresses the question of the distributional burden of a carbon tax. It shows that, not only the income measure -- annual or lifetime -- matters for the incidence of the tax, but also the underlying distribution of income. The Swedish carbon tax on transport fuel is regressive between 1999-2012 when measured against annual income, but progressive when using lifetime income. The overall trend, however, is toward an increase in regressivity, which is highly correlated with a rise in income inequality. Analysis of the determinants of distributional effects lends support to our hypothesis that, for necessities -- goods with an income elasticity below one -- rising income inequality increases the regressivity of a consumption tax. 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.

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