Who Really Bears the Burden of Carbon Tax in Chile?
Title: Who bears the burden of a carbon tax? Distributional implications of environmental taxation in Chile.
Abstract: Aside to the positive environmental impacts of a carbon tax to reduce emissions, concerns about the distributional effects of such a tax have to be addressed: who bears the burden of a carbon tax? Citizens and policy- makers are oftentimes concerned when discussing carbon taxation, because of possible regressive outcomes on households. Those concerns result in reserved action towards the implementation of a carbon pricing system. Distributional effects are therefore important to assess in order to ensure a sustainable achievement of the goals of the Paris agreement. My master thesis addresses the distributional effects of a carbon tax on households in Chile. This is analyzed by simulating the effects of a carbon tax in the amount of 5 USD/tones CO2 on Chilean households. Thereby, price increases can be obtained. As each household has different energy consumption patterns, the carbon tax burden can be assessed. The carbon tax burden and how it differs across income deciles is measured as the percentage of a household’s expenditure spent on the tax. If the budget shares decrease with expenditure it is regressive and vice versa it is progressive. My results show that the carbon tax in Chile acts regressively. The lowest decile spends 0.6 % of their annual disposable expenditure on the tax, in contrast to 0.5% for the highest decile. I want to answer the following questions:
1. How can regressivity of a carbon tax be mitigated?
2. How can revenue recycling options mitigate regressivity
I answer those questions by conducting an Input-Output (IO) analysis. I calculate the energy- intensity of consumption for Chilean households.
The data I use is a household expenditure survey from 2013, conducted by the Chilean statistics institute, in order to assess the specific energy consumption patterns of households. By calculating the carbon intensities of goods and services and linking those to the household expenditure patterns of Chilean households, I’m able to derive the welfare effects of a carbon tax Chile. I propose two scenarios on how to mitigate the regressivity by the use of revenue recycling: lump sum payments and targeted cash transfers by the government. Additionally, I propose to reinvest the revenues generated by the tax into the educational sector, as the high inequality in Chile is mostly driven by its unequal educational system.about the distributional effects of such a tax have to be addressed: who bears the burden of a carbon tax? Citizens and policy- makers are oftentimes concerned when discussing carbon taxation, because of possible regressive outcomes on households. Those concerns result in reserved action towards the implementation of a carbon pricing system. Distributional effects are therefore important to assess in order to ensure a sustainable achievement of the goals of the Paris agreement. My master thesis addresses the distributional effects of a carbon tax on households in Chile. This is analyzed by simulating the effects of a carbon tax in the amount of 5 USD/tones CO2 on Chilean households. Thereby, price increases can be obtained. As each household has different energy consumption patterns, the carbon tax burden can be assessed. The carbon tax burden and how it differs across income deciles is measured as the percentage of a household’s expenditure spent on the tax. If the budget shares decrease with expenditure it is regressive and vice versa it is progressive. My results show that the carbon tax in Chile acts regressively. The lowest decile spends 0.6 % of their annual disposable expenditure on the tax, in contrast to 0.5% for the highest decile. I want to answer the following questions: 1. How can regressivity of a carbon tax be mitigated?
Contact: lealuedemann@hotmail.de