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GTAP Resource #5381

by Yuan, Mei, Gilbert Metcalf, John Reilly and Sergey Paltsev

A primary reason for implementing a carbon or greenhouse gas tax is to reduce emissions but in recent years there has been increased interest in a carbon tax's revenue potential. This revenue could be used for federal deficit reduction, to help finance income tax reform, support new spending priorities such as infrastructure spending, offset the burden of the tax on households, or other purposes. With an environmental goal to reduce emissions to very low levels, programs that become dependent on the revenue may come up short when and if carbon revenue begins to decline. To date, the revenue potential of a carbon tax has not been studied in detail. This study focuses on how much carbon tax revenue can be collected and whether there is carbon “Laffer Curve” relationship, with a point where revenue begins to decline. We employ the MIT U.S. Regional Energy Policy (USREP) model, a dynamic computable general equilibrium model for the U.S. economy, for the numerical investigation of this question. To examine emissions and revenue responsiveness to the carbon tax, we consider scenarios with different carbon tax rate. We find tax revenue could peak at a high carbon tax level with more deployment of low-carbon technologies. To further explore the role of low-carbon technologies, we introduce a variation to the technology cost assumptions. Our preliminary results suggest that lower cost of abatement technology makes emissions more responsive to the tax rate. Hold the carbon tax rate constant, lowering the cost of low-carbon technology leads to less tax revenue collection. In terms of the peak timing, we find that the revenue peak comes earlier with lower cost of low-carbon technologies and tends to delay with higher cost of low-carbon technologies. The emission responsiveness to the carbon tax rate and technology cost assumption demonstrates the economic feedback that is the essence in Laffer Curve analyses.

Resource Details (Export Citation) GTAP Keywords
Category: 2017 Conference Paper
Status: Published
By/In: Presented at the 20th Annual Conference on Global Economic Analysis, West Lafayette, IN, USA
Date: 2017
Created: Yuan, M. (4/16/2017)
Updated: Yuan, M. (6/14/2019)
Visits: 1,428
- Dynamic modeling
- Climate change policy
- Economic growth
- Other data bases and data issues
- North America

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