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Report
Firms’ Supply Chain Adaptation to Carbon Taxes
This paper investigates how firms adapt their sourcing of clean and dirty inputs in response to changes in climate policy. We use information from the European Union’s Emissions Trading System (EU ETS) and the Carbon Border Adjustment Mechanism (CBAM) to create a new classification of clean and dirty products based on whether they are subject to a domestic or a border carbon tax. We then combine this dataset with French firms’ product-level import data over 2000–2019 and estimate that firms’ propensity to import dirty inputs from non-EU countries increased in the 2010s, reflecting ...
Working Paper
Unequal Climate Policy in an Unequal World
We study climate policy in an economy with 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 and 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. We show that the constrained optimal ...
Working Paper
Recycling Carbon Tax Revenue to Maximize Welfare
This paper explores how to recycle carbon tax revenue back to households to maximize welfare. Using a general equilibrium lifecycle model calibrated to reflect the heterogeneity in the U.S. economy, we find the optimal policy uses two thirds of carbon-tax revenue to reduce the distortionary tax on capital income while the remaining one third is used to increase the progressivity of the labor-income tax. The optimal policy attains higher welfare and more equality than the lump-sum rebate approach preferred by policymakers as well as the approach originally prescribed by economists -- which ...
Working Paper
Understanding the Inequality and Welfare Impacts of Carbon Tax Policies
This paper develops a general equilibrium lifecycle model to explore the welfare and inequality implications of different ways to return carbon tax revenue back to households. We find that the welfare maximizing rebate uses two thirds of carbon-tax revenue to reduce the distortionary tax on capital income while using the remaining one third to increase the progressivity of the labor-income tax. This recycling approach attains higher welfare and more equality than the lump-sum rebate approach preferred by policymakers as well as the approach originally prescribed by economists __ which called ...