The distributional impact of a carbon tax in Ireland

Abstract

We study the effects of carbon taxation and revenue recycling across the income distribution in Ireland. Price changes of fuels and all other final goods and services are taken into account. If applied only to the emissions not covered by the EU Emissions Trading Scheme, a carbon tax of ���20/tCO2 would cost the poorest households around ���3.5/week and the richest ones ���5/week. The tax is regressive, therefore. However, if the revenue is used to increase social benefits and tax credits, households across the income distribution can be made better off without exhausting the total carbon tax revenue.