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Carbon Taxation: A Review of the Empirical Literature
Journal of Economic Surveys, 2022, 36 pages, pp.1-36,
Commissioned by: European Commission
Study by: Austrian Institute of Economic Research – ECORYS Holding BV
In view of the challenges posed by climate change and the increasingly ambitious climate targets around the world, the search for effective climate policy instruments is gaining momentum. Carbon pricing, for example, in the form of a carbon tax, and its effects are therefore attracting increasing attention in academic as well as policy discussions. We review the empirical effects of carbon taxes with regard to several impact dimensions commonly studied in the literature: environmental effectiveness, macroeconomic effects, impacts on competitiveness and innovation, distributional implications, and public acceptance. An increasing body of empirical studies shows that carbon taxes can effectively reduce carbon emissions or at least dampen their growth while not negatively affecting economic growth, employment, and competitiveness. The existing empirical evidence suggests that the distributional impact of carbon taxes depends on the type of energy use and the indicators to capture distributional effects, as well as on household characteristics. Lump-sum transfers are shown to be better suited to mitigate regressive effects for lower incomes, while higher incomes benefit more from a reduction of labour taxes. Public acceptance of carbon taxes can be increased by providing public information, avoiding negative distributional effects, and channelling part of the revenues into "environmental projects".
JEL-Codes:H23, Q54, Q58
Keywords:Carbon taxation, climate policy, distributional effects, double dividend hypothesis, price-based instruments
Research group:Macroeconomics and European Economic Policy – Environment, Agriculture and Energy