Policy Evaluation
Policy Evaluation
This chapter presents the simulation results for five increasingly aggressive carbon tax regimes covering all greenhouse gas emissions. Major fiscal reform is viewed from a tax perspective involving capital tax reductions, labor tax reductions, their combination or lump-sum redistribution. The economy differs markedly across the four fiscal treatments but emissions reductions do not. Macroeconomic and industry impacts are described in detail. For the economy, the benefits of capital tax recycling outweigh the costs of carbon taxation; this reverses for the labor and lump-sum alternatives. Price-induced technical change is shown to be a net positive force for growth. Welfare effects are described demographically for individual households and in the aggregate. Social welfare is decomposed into efficiency and equity effects and is viewed from an egalitarian or utilitarian perspective. Labor tax reductions are welfare inferior despite their unqualified progressivity and are not necessarily superior to lump-sum redistribution at either the household or societal levels. Capital tax reductions, the book's titular double dividend, are welfare superior despite their qualified regressivity.
Keywords: carbon taxes, revenue recycling, capital taxes, labor taxes, lump-sum redistribution, macroeconomic performance, industry performance, price-induced technical change, household welfare, social welfare, efficiency, equity, egalitarian, utilitarian, regressivity, progressivity
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