TY  - JOUR
AU  - Cronin, Julie Anne
AU  - Fullerton, Don
AU  - Sexton, Steven E
TI  - Vertical and Horizontal Redistributions from a Carbon Tax and Rebate
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 23250
PY  - 2017
Y2  - March 2017
DO  - 10.3386/w23250
UR  - http://www.nber.org/papers/w23250
L1  - http://www.nber.org/papers/w23250.pdf
N1  - Author contact info:
Julie Anne Cronin
Department of the Treasury
E-Mail: julieanne.cronin@treasury.gov

Don Fullerton
Department of Finance
University of Illinois
515 East Gregory Drive, BIF Box#30 (MC520)
Champaign, IL  61820
Tel: 217/244-3621
Fax: 217/244-3102
E-Mail: dfullert@illinois.edu

Steven E. Sexton
Sanford School of Public Policy
201 Science Drive, 184 Rubinstein Hall
Duke University
Durham, NC 27708
E-Mail: steven.sexton@duke.edu
M1  - published as Julie Anne Cronin, Don Fullerton, Steven Sexton. "Vertical and Horizontal Redistributions from a Carbon Tax and Rebate," in Tatyana Deryugina, Don Fullerton, and Billy Pizer, organizers, "Energy Policy Tradeoffs between Economic Efficiency and Distributional Equity" Journal of the Association of Environmental and Resource Economists, volume 6, number S1 (University of Chicago Press) (2019)

AB  - Because electricity is a higher fraction of spending for those with low income, carbon taxes are believed to be regressive. Many argue, however, that their revenues can be used to offset the regressivity. We assess these claims by employing data on 322,000 families in the U.S. Treasury’s Distribution Model to study vertical redistributions between rich and poor, as well as horizontal redistributions among families with common incomes but heterogeneous energy intensity of consumption (different home heating and cooling demands). Accounting for the statutory indexing of transfers, and measuring impacts on annual consumption as a proxy for permanent income, we find that the carbon tax burden is progressive, rising across deciles as a fraction of consumption. The rebate of revenue via transfers makes it even more progressive. In every decile, the standard deviation of the change in consumption as a fraction of consumption varies around 1% or 2% and is larger than the average burden (about 0.7%). When existing transfer programs are used to rebate revenue, the tax and rebate together increase that variation to more than 3% within each decile. The average family in the poorest decile gets a net tax cut of about 1% of consumption, but 44% of them get a net tax increase. Relative to no rebate, every type of rebate we consider increases this variation within most deciles.
ER  -