Gathering Support for Green Tax Reform: Evidence from German Household Surveys

49 Pages Posted: 12 Nov 2021

See all articles by Rick van der Ploeg

Rick van der Ploeg

University of Oxford

Armon Rezai

Vienna University of Economics and Business

Miguel Tovar

The Economics and Social Research Institute

Multiple version iconThere are 2 versions of this paper

Date Written: 2021

Abstract

Green tax reform is unpopular because, typically, the poor are hurt most by the higher prices of carbon-intensive commodities. If revenues from a carbon tax are recycled, it may be feasible to gain popular support for green tax reform. To investigate this, we estimate an EASI demand system from German household data and a labour supply schedule, using wage data, and the German income tax schedule and let emission intensities decline in the carbon tax. If the revenue from a carbon tax is recycled via a lump-sum transfer to all households, this gives more equitable albeit less efficient outcomes, yet 70% of households are worse off. If the revenue is recycled via lower income taxes, there is more efficiency at the expense of more inequality, and about half of households benefit. With a recycling mix of lump-sum transfers and lower income taxes, popular support can be mustered without hurting equity too much. We also investigate the effects of Germany meeting its legal target for curbing emissions by 55% in 2030 relative to 1990 levels. We find that most of emission reductions are due to producers responding by lowering emission intensities rather than by consumers to less carbon-intensive consumption categories.

Keywords: popular support, carbon tax, revenue recycling, equity, EASI demand system, labour supply

JEL Classification: D120, D310, D620, D630, H230, J220, Q500

Suggested Citation

van der Ploeg, Frederick and Rezai, Armon and Tovar, Miguel, Gathering Support for Green Tax Reform: Evidence from German Household Surveys (2021). CESifo Working Paper No. 9398, Available at SSRN: https://ssrn.com/abstract=3959452 or http://dx.doi.org/10.2139/ssrn.3959452

Frederick Van der Ploeg (Contact Author)

University of Oxford ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Armon Rezai

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Miguel Tovar

The Economics and Social Research Institute ( email )

Dublin 2
Ireland

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