Full Title: The Potential Role of a Carbon Tax in U.S. Fiscal Reform
Author(s): Warwick J. McKibben et all.
Publisher(s): The Brookings Institution
Publication Date: July 1, 2012
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Description (excerpt):
This paper examines fiscal reform options in the United States with an inter temporal computable general equilibrium model of the world economy called G-Cubed. Six policy scenarios explore two overarching issues: (1) the effects of a carbon tax under alternative assumptions about the use of the resulting revenue, and (2) the effects of alternative measures that could be used to reduce the budget deficit. We examine a simple excise tax on the carbon content of fossil fuels in the U.S. energy sector starting immediately at $15 per metric ton of carbon dioxide (CO2) and rising at 4 percent above inflation each year through 2050. We investigate policies that allow the revenue from the illustrative carbon tax to reduce the long run federal budget deficit or the marginal tax rates on labor and capital income. We also compare the carbon tax to other means of reducing the deficit by the same amount.