Fiscal Interactions and the Case for Carbon Taxes Over Grandfathered Carbon Permits

Abstract

This paper provides simple formulas for adjusting the costs of carbon taxes and tradable carbon permits to account for interactions with preexisting tax distortions in the labor market. Both policies reduce labor supply as they increase product prices and reduce real household wages; the resulting efficiency losses in the labor market can be substantial relative to partial equilibrium abatement costs. However, much of this added cost can be offset-and perhaps more than offset when additional distortions from the tax system are considered-if revenues from carbon taxes or auctioned permits are used to reduce distortionary taxes. Consequently, there can be a strong case on efficiency grounds for using carbon taxes or auctioned permits over grandfathered carbon permits.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 57 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.