Carbon Tax Incidence and Household Energy Demand in the U.S.
2017
Zhang, Jun
This paper develops a model based on the general equilibrium framework to evaluateHousehold’s excess burden of carbon tax levied on energy goods (electricity and natural gas). The model accounts for tax distortion on labor market and cross-price effects between energy goods. With data from the U.S. Residential Energy Consumption Survey, own price and cross-price elasticities of energy goods are estimated. Substitution effects are found between electricity and natural gas, and omitting such effects will overestimate the excess burden of carbon tax. The results indicate that carbon tax performs differently on affecting excess burden of low, middle and high income households. With a low pre-set labor tax rate, higher income households have lower excess burden comparing to lower income households, but with a high pre-set labor tax rate, the effect is reverse.
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