- Consistent with earlier findings, @AEIecon’s Aparna Mathur finds that a carbon tax is regressive.
- The carbon tax burden would comprise 3.5% of the income of the poorest decile of households.
- In the consumption approach, the carbon tax is substantially less regressive.
Editor's note: This study was originally published December 18, 2012. The original report can be accessed using the link at the conclusion of the abstract. To access the up-to-date report, please click the blue arrow above.
This paper analyzes the distributional implications of an illustrative $15 carbon tax imposed in 2010 on carbon in fossil fuels. We analyze its incidence across income classes and regions, both in isolation and when combined with measures that apply the carbon tax revenue to lowering other distortionary taxes in the economy. Consistent with earlier findings, we find that a carbon tax is regressive. Using tax swap simulations, we then subtract the burden of other taxes the carbon tax revenue could displace, and compute the net effect on households under three assumptions about how capital and labor income might be distributed.