Unequal Climate Policy in an Unequal World
Jueves 11/7, 12h
Seminario presentado por Elisa Belfiori
Abstract
We study climate policy in an economy with income-heterogeneous households, two types of goods (clean and dirty), and a climate externality from the dirty good. Using household expenditure and emissions data, we document that low-income households have higher emissions per dollar spent than high-income households, making a carbon tax regressive. We build a model that captures this fact to study climate policies that are neutral with respect to the income distribution. A central feature of these policies is that resource transfers across consumers are ruled out; only rebates of the individual tax bill to the consumers are allowed. We show that the constrained optimal carbon tax in a heterogeneous economy is heterogeneous: higher-income households face a higher rate. Our main result shows that when the planner is limited to a uniform carbon tax, the tax follows the Pigouvian rule but is lower than the unconstrained carbon tax. Finally, we embed this model into a standard incomplete markets framework to quantify the policy effects on the economy, climate, and welfare, and we find a win-win result. The climate policy is welfare-improving for every consumer.
* Jointly written with Daniel Carroll and Sewon Hur.
Elisa Belfiori
Elisa is a professor at the Business School of Torcuato Di Tella University. She holds a Ph.D. in Economics from the University of Minnesota. Her research sits at the intersection of macroeconomics and climate change with applications in public finance. She has published her work in international journals such as the European Economic Review, Journal of Environmental Economics and Management, Economics of Energy and Environmental Policy, and Energy Policy. She is the co-editor and contributing author of the book "The Economics of Climate Change in Argentina,” published by Springer.
We study climate policy in an economy with income-heterogeneous households, two types of goods (clean and dirty), and a climate externality from the dirty good. Using household expenditure and emissions data, we document that low-income households have higher emissions per dollar spent than high-income households, making a carbon tax regressive. We build a model that captures this fact to study climate policies that are neutral with respect to the income distribution. A central feature of these policies is that resource transfers across consumers are ruled out; only rebates of the individual tax bill to the consumers are allowed. We show that the constrained optimal carbon tax in a heterogeneous economy is heterogeneous: higher-income households face a higher rate. Our main result shows that when the planner is limited to a uniform carbon tax, the tax follows the Pigouvian rule but is lower than the unconstrained carbon tax. Finally, we embed this model into a standard incomplete markets framework to quantify the policy effects on the economy, climate, and welfare, and we find a win-win result. The climate policy is welfare-improving for every consumer.
* Jointly written with Daniel Carroll and Sewon Hur.
Elisa Belfiori
Elisa is a professor at the Business School of Torcuato Di Tella University. She holds a Ph.D. in Economics from the University of Minnesota. Her research sits at the intersection of macroeconomics and climate change with applications in public finance. She has published her work in international journals such as the European Economic Review, Journal of Environmental Economics and Management, Economics of Energy and Environmental Policy, and Energy Policy. She is the co-editor and contributing author of the book "The Economics of Climate Change in Argentina,” published by Springer.