Distributive effects of carbon taxation are key for its political acceptability. We evaluate the aggregate and distributive effects of carbon taxation and obtain three key results. First, the distributional costs of carbon taxation are driven by geography...
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Distributive effects of carbon taxation are key for its political acceptability. We evaluate the aggregate and distributive effects of carbon taxation and obtain three key results. First, the distributional costs of carbon taxation are driven by geography rather than income, with rural households suffering larger welfare losses. Second, taxing households’ direct emissions is regressive, while taxing firms’ direct emissions is progressive. Third, we find that using targeted transfers both reduces emissions and mitigates welfare losses associated with the green transition.
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