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The environmental and distributional effects of carbon taxes

Andersson, Julius J. (2019) The environmental and distributional effects of carbon taxes. PhD thesis, The London School of Economics and Political Science (LSE).

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Abstract

This thesis consists of three essays that seek to advance our knowledge of the environmental and distributional effects of carbon taxes. There are surprisingly few ex post empirical studies of their causal effect, and this thesis is my attempt at filling that gap in the literature. I use Sweden as the case study, one of the first countries to implement a carbon tax. First, I show that the tax signifi- cantly reduced carbon emissions from the transport sector. Furthermore, I find that consumers respond more to changes to the carbon tax rate than equivalent market-driven gasoline price changes. This finding indicates that policy evaluations of carbon taxes, using price elasticities to simulate emission reductions, may underestimate their true effect, and that carbon taxes are more efficient in reducing emissions than previous studies suggests. Second, I find that, over time, the carbon tax has become increasingly regressive, which is highly correlated with an increase in income inequality. Analysis of the determinants of tax incidence lends support to my hypothesis that for necessities { goods with an income elasticity below one - rising income inequality increases regressivity. To mitigate climate change, a carbon tax should be applied to goods that typically are necessities: transport fuel, food, heating, and electricity. Carbon taxation will thus likely be regressive in high-income countries, the more so the more unequal the distribution of income. Lastly, I show that adding a carbon tax to animal food products is an environmentally efficient way to reduce greenhouse gas emissions from the agricultural sector. The tax incidence is proportional when measured against lifetime income but regressive when measured against annual income, with diverse impacts on diets depending on disposable income. In summary, carbon taxes are environmentally efficient, and to increase their political viability and perceived fairness, policy-makers should include revenue-recycling mechanisms, reductions of distortionary taxes, or other means to offset the regressive effect.

Item Type: Thesis (PhD)
Additional Information: © 2019 Julius J. Andersson
Library of Congress subject classification: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HG Finance
Sets: Departments > Geography and Environment
Supervisor: Groom, Ben and Atkinson, Giles
URI: http://etheses.lse.ac.uk/id/eprint/4081

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