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Abstract

In order to better understand the political feasibility of different carbon taxes and different ways of using the revenue generated by a carbon tax, this paper extends an existing general-equilibrium model (Goulder and Hafstead, 2013) to generate estimates of the percentage of households that are economically benefited by such policies. It then adjusts these estimates to account for the different turnout rates among income groups, with higher-income individuals being much more likely to vote than lower-income individuals. The effects of each policy on relevant attributes (consumption, leisure, income) of each household are also analyzed. This analysis finds that lump sum transfers are the revenue recycling method likely to benefit the largest percentage of the American population (for carbon taxes above $5-15/metric ton) and that the percentage of households benefited by a carbon taxation policy decreases as the carbon tax increases. Additionally, the paper finds that not adjusting for voter turnout rates leads to significant over-estimates in the maximum carbon tax that a majority of voters would support.

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