Carbon Tax Costs and Distributional Impacts
This is joint work with Dr. Brett Dolter, University of Regina and Dr. G. Kent Fellows, University of Calgary. It is accepted at Canadian Public Policy.
Given the differences in provincial approaches to emissions pricing and the differences in household spending, it can be difficult to determine exactly how much this carbon price costs Canadian households. In an effort to help people understand the household impact of carbon pricing in Canada, for each province and by income decile, we present estimates of:
costs by energy type (electricity, natural gas, gasoline, heating oil),
total costs from carbon pricing,
the value of a rebate under different rebate mechanisms, and
the net effect of carbon pricing for Canadian household budgets.
We analyse four revenue-recycling options: (1) a means-tested sales tax (GST/HST) credit increase; (2) a lump sum dividend; (3) a sales tax rate reduction; and (4) an increased basic exemption for personal income taxes. We characterise the distributional impact and progressivity of each revenue-recycling option.
We find the carbon tax is generally progressive even without revenue recycling, the GST rebate and lump sum rebate are progressive, the sales tax rate reduction is mostly regressive, and the income tax change is regressive. Importantly, the large-emitters system mitigates the indirect costs that exacerbates the effect of carbon pricing on households.
The accepted paper explains our methodology and results in detail, and report results on the website www.carbontaxcosts.ca.