October 12, 2015


This conservative economist makes the case for a carbon tax (Amanda Little, 12 Oct 2015, Grist)

Q. And a carbon tax is the most expedient solution?

A [N. Gregory Mankiw]. I'm in favor of tackling climate change in a way that uses the lightest hand of government as possible. That is, to put a price on carbon and incentivize people to reduce carbon emissions through a variety of different channels, allowing individuals to figure out what's the best way to do that. Is it best to drive smaller cars? Is it best to carpool to work? Is it best to move closer to work? Is it best to commit to public transportation? There's lots of different ways to change your carbon footprint. Regulations tell you how you should do that, whereas putting a price on carbon nudges people in the direction of reducing their carbon footprint but allows individuals to decide what's the best way for them to do that.

Q. Let's get into a bit more detail on the carbon tax you advocate--how will this work?

A. The basic idea of a carbon tax is mainly to put a price on carbon, to directly raise prices on carbon. Once you put a price on carbon, people will conserve on carbon emissions, just like they conserve on other things that are costly. That doesn't mean we should raise taxes overall, though. If we put a price on carbon and raise revenue through that carbon tax, we can then take that money and funnel it back to people by reducing sales taxes, income taxes, or other taxes. If we're smart about how we cut other taxes, there's no reason that this should be a net tax increase, nor does it need to change the distribution of the tax burden among the rich vs. poor.

Q. Why the emphasis on revenue neutrality?

A. There's no question that all consumers are going to end up paying higher prices for carbon-intensive goods. If you want to make this politically palatable to people, so that they're incentivized but not necessarily worse off, you need to turn around and say, "Look, whatever revenue we're collecting from this, we're giving back to you."

Hike all consumption taxes; get rid of income taxes.

Posted by at October 12, 2015 2:02 PM

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