Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235301 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8931
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
We develop a model of optimal carbon taxation and redistribution taking into account horizontal equity concerns by considering heterogeneous energy efficiencies. By deriving first- and second-best rules for policy instruments including carbon taxes, transfers and energy subsidies, we then investigate analytically how horizontal equity is considered in the social welfare maximizing tax structure. We calibrate the model to German household data and a 30 percent emission reduction goal. Our results show that energy-intensive households should receive more redistributive resources than energy-efficient households if and only if social inequality aversion is sufficiently high. We further find that redistribution of carbon tax revenue via household-specific transfers is the first-best policy. Equal per-capita transfers do not suffer from informational problems, but increase mitigation costs by around 15 percent compared to the first-best for unity inequality aversion. Adding renewable energy subsidies or non-linear energy subsidies, reduces mitigation costs further without relying on observability of households’ energy efficiency.
Subjects: 
carbon price
horizontal equity
redistribution
renewable energy subsidies
climate policy
just transition
JEL: 
H21
H23
Q52
Q54
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.