Impacts of British Columbia's Carbon Tax Across the Income Distribution

"This thesis explores effects of environmental policy on household incomes and expenditures by examining the impact of British Columbia’s carbon tax on income and welfare-relevant expenditures across the income distribution. The tax package contains a revenue recycling mechanism aimed at lessening the expected regressivity of the tax. I employ a two-pronged approach to assess the carbon tax’s impacts. First, I conduct a microsimulation analysis of household carbon tax expenditures by income in 2008 to project the tax’s expected regressivity and look at net effects across incomes. Then, I analyze changes in various categories of household expenditures between pre-tax and post-tax years in British Columbia and the rest of Canada in order to study welfare-relevant shifts in consumption bundles from the tax. I find that the carbon tax package is slightly progressive in 2008, though my assumptions may be biased towards predicting a more progressive outcome than may obtain in practice. In my analysis of expenditures, my regressions with expenditure levels suggest that there is no significant change in total expenditures across income levels due to the carbon tax. The regressions with expenditure shares, however, show a greater decrease in food expenditure shares after the tax for low-income households compared to high-income households in British Columbia. These results suggest there is no notable change in inequality from British Columbia’s carbon tax up to 2017, though the impact on food expenditure shares may have key welfare implications for food access in low-income households. "

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