Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/320492 
Year of Publication: 
2025
Series/Report no.: 
IZA Discussion Papers No. 17898
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Carbon pricing is becoming increasingly common but raises equity concerns and is frequently perceived as putting higher burdens on the poor than the rich. This paper discusses the reasons for unequal carbon price burdens across countries and population groups, through the lens of a comparative analysis for two countries with comparable climates but different income levels, Lithuania and Finland. The simulations consider multiple revenue recycling options, and they account for both the direct burdens from households' fuel consumption and indirect burdens associated with the impact of carbon charges on the prices of other goods. With no compensation to affected households, average burdens are larger and also more regressive in Lithuania than in Finland, largely because of cross-country differences in energy expenditure patterns. Net distributional outcomes depend crucially on how carbon tax revenues are used, however, and carefully designed compensation can prevent regressive impacts of carbon-price packages.
Subjects: 
Carbon tax burden
Distributional impact
Energy budget share
Environmental tax reform
Carbon taxation
Revenue recycling
JEL: 
C8
D12
D31
H23
Q52
Document Type: 
Working Paper

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