The Intergenerational Incidence of Green Tax Reform

Abstract

We examine the lifetime incidence and intergenerational distributional effects of an economy-wide carbon tax swap using a numerical dynamic general equilibrium model with overlapping generations of the U.S. economy. We highlight various fundamental choices in policy design including (1) the level of the initial carbon tax, (2) the growth rate of the carbon tax trajectory of over time, and (3) alternative ways for revenue recycling. Without revenue recycling, we find that generations born before the tax is introduced experience smaller welfare losses, or even gain, relative to future generations. For sufficiently low growth rates of the tax trajectory, the impacts for distant future generations decrease over time. For future generations born after the introduction of the tax, the negative welfare impacts are the smallest (largest) when revenues are recycled through lowering pre-existing capital income taxes (through per-capita lump-sum rebates). For generations born before the tax is introduced, we find that lump-sum rebates favor very old generations and labor (capital) income tax recycling favors very young generations (generations of intermediate age).

Green technology policies versus carbon pricing: An intergenerational perspective

“…Rausch and Yonezawa (2018) also consider the impacts of using carbon revenues to reduce the size of the federal debt in an OLG model.5 Also in a DICE-type OLG model, and abstracting from Pareto-improving policies as inKotlikoff et al (2020),Leach (2009) shows that a variety of carbon policies, including an approximation of the Kyoto protocol, leave early generations worse off.…”

Green Technology Policies Versus Carbon Pricing: An Intergenerational Perspective

“…Rausch and Yonezawa (2018) also consider the impacts of using carbon revenues to reduce the size of the federal debt in an OLG model.7 Also in a DICE-type OLG model, and abstracting from Pareto-improving policies as inKotlikoff et al (2020),Leach (2009) shows that a variety of carbon policies, including an approximation of the Kyoto protocol, leave early generations worse off.…”