The Redistributive Impact of British Columbia’s Carbon Tax

Daniel Rosen and Dr. Shawn Santo, Department of Statistical Science, Duke University, Durham, NC 27708

A growing body of literature suggests that the costs associated with traditional carbon taxes are not borne evenly across the income distribution. As lower-income households spend a larger portion of disposable income on carbon-intensive goods, they consequently devote a greater proportion of total expenditures to carbon taxes. Nevertheless, the disproportionate incidence of carbon taxation on low-income households can be mitigated by revenue recycling in the form of reduced taxes or redistribution in the form of a dividend. The redistributive implications of carbon taxes are accordingly dependent on the specific revenue recycling strategies employed by governments. Research on how carbon taxes affect inequality within political units, however, has been limited to simulating the effect of price increases on household consumption due to a lack of observational data. British Columbia’s implementation of a large-scale carbon tax in 2008 provides a unique opportunity to empirically evaluate the redistributive implications of carbon taxes. In this paper, we will use household consumption microdata from Statistics Canada’s annual Survey of Household Spending to examine changes in spending on various categories of goods across income brackets after the introduction of British Columbia’s tax. We expect to find that British Columbia’s use of tax rebates for low-income households has sufficiently offset the greater carbon tax incidence on these families. For the lowest earners, such programs are likely insufficient as they already have a negligible effective tax rate. Such households will consequently devote a greater proportion of spending on carbon-intensive goods after the introduction of the tax. These anticipated findings suggest that future carbon taxation schemes may need to develop more comprehensive redistribution programs that specifically target the poor. 

Additional Abstract Information

Presenter: Daniel Rosen

Institution: Duke University

Type: Poster

Subject: Economics

Status: Approved

Time and Location

Session: Poster 5
Date/Time: Tue 12:30pm-1:30pm
Session Number: 4131