Income Distribution Effects of Imposing Carbon Tax on Transportation and Household Fuels

Abstract

This study has analyzed the results of income distribution effects of the current energy-related taxes compared to when the carbon tax is levied on CO₂ emissions from transportation and households, by using the data from 2009 Survey of the Household Income & Expenditure Trends and applying Kakwani index. As a result, the following results were obtained: First, the most carbon dioxide emitting fuels were household LNG, gasoline and diesel oil in that order. Second, the carbon tax charge per household was analyzed to be greater for transportation fuels based on total households. Additionally, for transportation fuel, depending on income decile, the carbon tax increased at a constant rate, which reflected a regressive nature. Third, according to the Kakwani index"s estimation result, the tax imposed on household fuels was proportional while the tax imposed on transportation fuels including carbon tax was mostly regressive. Fourth, all taxes imposed on transportation and household fuels were almost proportional. However, when carbon tax was additionally imposed, they were regressive. That is, in terms of equity, when carbon tax was imposed, it showed that low-income households would be relatively more disadvantageous than high-income households.