Research
Working papers
Climate impacts on labor and capital: implications for growth, inequality, and the social cost of carbon
with Simon Feindt (in revision)
Abstract
Climate change is poised to generate economic damages through many channels, in particular through shocks to the factors of production. We use an integrated assessment model with sub-regional inequality and introduce direct impacts on capital and productive labor stocks, resulting in endogenously persistent damages. We model and calibrate the joint distribution of labor and capital income, to capture the role played by income composition heterogeneity in within-region inequality. When taking the non-proportionality of damages into account, inequality increases with labor productivity and capital damages, but labor impacts tend to have a stronger effect. In the most affected regions, these factor-specific damages can lead to important consumption losses at the bottom of the distribution, resulting in a large increase in the social cost of carbon. Abstract
Carbon taxation is a flagship climate policy aimed at reducing greenhouse gas emissions efficiently. Yet, it fails to garner sufficient political support in many countries. This paper investigates the role of urban-rural inequalities in this lack of domestic support. I develop a model of majority voting over a carbon tax at a national level, with both income and urban-rural heterogeneity. Rural households are constrained to consume more necessary energy goods than urban households, which I capture with heterogeneous Stone-Geary utility. I characterize the conditions for the existence of a majority voting equilibrium and perform a calibration of the model using budget survey data for twenty European countries. I find that the majority voting tax may be at a higher rate than the optimal carbon tax. However, the calibration suggests that the optimal rate tends to exceed the majority voting rate by a few percent. This result holds even if the households and the social planner share the same level of environmental preference. I demonstrate that political support among rural households is always below that of urban households. The numerical exercise reveals a gap between 15 and 45 %, at the median income. Carbon taxation generates revenues that can be redistributed to households. The calibration suggests that lump-sum or means-tested transfers render the tax and rebate scheme progressive, but have only a limited effect on political support. Different taxes or redistribution: How to shape a just global climate policy?
with Aurélie Méjean, Stéphane Zuber, Francis Dennig, Frank Errickson & Simon Feindt (submitted)
Abstract
This paper compares the effects of differentiated carbon taxes with those of a global harmonized tax associated with revenue recycling. Using a global Integrated Assessment Model representing national economies, we find that a uniform global carbon tax with lump-sum per capita recycling is the most welfare enhancing and inequality reducing policy. It can bring a welfare improvement equivalent to several percents of average global consumption until 2050. This scheme however implies large international transfers between countries. A more modest scheme, where 5\% of global carbon revenues are targeted to compensate loss and damage in poor countries particularly vulnerable to the impacts of climate change, can result in strong inequality reductions, and significant welfare increases for low income countries. Differentiated taxes with country-level redistribution can have positive effects, especially on inequality, but those mainly happen after 2050, when poorer countries have larger carbon tax revenues to redistribute. 