The global consumer incidence of carbon pricing: Evidence from trade

Abstract

Carbon pricing is often seen as regressive, disproportionately burdening low-income consumers. I show that higher prices following a global carbon price would be mildly regressive in industrialized countries, mildly progressive in developing countries, and steeply regressive across countries. Refunding revenues via national carbon dividends would reverse all three findings. The net effect would be globally progressive, even without international transfers. My approach to estimating the global distributional effects of carbon pricing uses bilateral trade data and features non-homothetic consumers who differ both between and within countries. The supply side includes substitution of inputs along global value chains.