Public finance options for recycling carbon tax revenue in Germany Frederick van der Ploeg, Armon Rezai and Miguel Tovar Reanos
By: Ploeg, Frederick van der
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Contributor(s): Rezai, Armon | Tovar Reanos, Miguel Ángel.
Material type: 
ArticleSubject(s): IMPUESTOS | CARBONO | INGRESOS FISCALES | POLITICAS PUBLICAS | FINANCIACION | MODELOS ECONOMETRICOS | MODELOS DE SIMULACIÓN
In:
FinanzArchiv v. 80, n. 1, March 2024, p. 39-69Summary: We use a micro simulation model for Germany to show that it is optimal to use part of carbon tax revenue for handing out climate dividends, part to lower income taxes, and part to make up for public revenue shortfalls. The optimal recycling mix is tilted towards climate dividends away from tax reductions as relative inequality aversion increases. For baseline inequality aversion, up to half of carbon tax revenue is used to fund climate dividends and the rest to fund income tax cuts. We consider the implications of a Linear Expenditure System for carbon price policies.
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We use a micro simulation model for Germany to show that it is optimal to use part of carbon tax revenue for handing out climate dividends, part to lower income taxes, and part to make up for public revenue shortfalls. The optimal recycling mix is tilted towards climate dividends away from tax reductions as relative inequality aversion increases. For baseline inequality aversion, up to half of carbon tax revenue is used to fund climate dividends and the rest to fund income tax cuts. We consider the implications of a Linear Expenditure System for carbon price policies.
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