Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264076 
Year of Publication: 
2022
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2022: Big Data in Economics
Publisher: 
ZBW - Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
In light of climate change mitigation efforts, revenues from climate policies are growing, with no consensus yet on how they should be used. Potential efficiency gains from reducing distortionary taxes and the distributional implications of different revenue recycling schemes are currently debated. To account for households heterogeneity and dynamic trade-offs, we study the macroeconomic and welfare performance of different revenue recycling schemes using an Environmental Two-Agent New-Keynesian model, calibrated on the German economy. We find that, in the long run, welfare gains are higher when revenues are used to reduce distortionary taxes on capital, but this comes at the cost of higher inequality: while all households prefer labor income tax reductions to lump-sum transfers, only financially unconstrained households are better off when reducing taxes on capital income. Interestingly, we find that over the transition period relevant to meet short-medium run climate targets, labor income tax cuts are the most efficient and equitable instrument.
Subjects: 
double dividend
E-DSGE
environmental tax reform
non-Ricardian households
revenue recycling
redistribution
JEL: 
E62
H23
H31
Q58
Document Type: 
Conference Paper

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