Join CGS on Tuesday, September 17, at 12:00 PM to hear CGS Research Assistant and PhD student Xiangjie Chen, discuss the effectiveness of various carbon taxation methods and revenue recycling mechanisms in reducing global poverty and inequality.
Abstract: Carbon taxation is a crucial policy option for curbing carbon emissions, it also offers the potential to support vulnerable households that might be affected adversely by climate policy by recycling the tax revenue. However, further research is essential to identify the optimal policy mix of carbon taxation and revenue recycling, especially when taking cross-country transfers into account. Here, we investigate the effectiveness of various carbon taxation methods and revenue recycling mechanisms in reducing global poverty and inequality with a Social Accounting Matrix-based model. Our findings suggest that the most effective global policy mix includes implementing a consumption tax with higher tax rates on luxury goods, coupled with recycling revenue through the social assistance expanded during the COVID-19 pandemic. This approach is also the best option for the majority of countries (97 out of 168). Furthermore, creating a global climate fund financed by developed countries and redistributed to developing countries based on poverty headcounts can significantly reduce poverty and inequality both within and between countries. However, to further unlock the poverty reduction potential of tax recycling, substantial improvements in social assistance systems, especially in Sub-Saharan African countries, are urgently needed.