Are Carbon Taxes Regressive in India? Evidence from NSSO Data

Abstract

Carbon tax, being less costly in achieving a given abatement target, has been highly recommended by economists and international organisations. However, distributional concerns against the carbon tax has been a matter of concern in the domain of public policy. This article tries to analyse the distributional impact of Carbon tax in India by using National Sample Survey Office (NSSO) data. The results of the study indicate that carbon pricing seems to hit the lower-expenditure households by a greater proportion than the rich elites. The severity was found to be greater for the rural households than the urban households. Strong regressivity was found in the energy use for cooking and lighting. However, for transportation, the results indicate mild progressivity. Among the various energy fuels, households using coal, liquefied petroleum gas (LPG), kerosene, firewood and dung cake for cooking and lighting were found to be hit hard by carbon pricing. In contrast, electricity consumption was found to be distributionally neutral. Petrol and diesel use for transportation were found to be progressive. The study advocates that regressivity of carbon tax should be taken into account by way of targeted revenue recycling measures like lump-sum transfers among poor households and cut in other distortionary taxes.