American Economic Review: Vol. 104 No. 5 (May 2014)

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Tax Policy Issues in Designing a Carbon Tax

Article Citation

Marron, Donald B., and Eric J. Toder. 2014. "Tax Policy Issues in Designing a Carbon Tax." American Economic Review, 104(5): 563-68.

DOI: 10.1257/aer.104.5.563

Abstract

A carbon tax is a promising tool for discouraging the greenhouse gas emissions that cause climate change. In principle, a well-designed tax could reduce the risk of climate change, minimize the cost of emissions reductions, encourage innovation in low-carbon technologies, and raise new public revenue. But designing a real-world carbon tax poses significant challenges. We analyze those challenges from a public finance perspective, emphasizing three tax policy design issues: setting the tax rate, collecting the tax, and using the resulting revenue. The benefits of a carbon tax will depend on how policymakers address those issues.

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Authors

Marron, Donald B. (Urban Institute, Washington, DC)
Toder, Eric J. (Urban Institute, Washington, DC)

JEL Classifications

H23: Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Q54: Climate; Natural Disasters; Global Warming
Q58: Environmental Economics: Government Policy


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