DISTRIBUTIONAL EFFECT OF CARBON TAX ON HOUSEHOLD CONSUMPTION IN JAPAN

Abstract

 Carbon taxation has been attracting attention as a measure to reduce greenhouse gas emissions. Although it can efficiently reduce emissions, concerns are that the impact of carbon taxes could be greater for lower-income groups because the impact is biased toward essential goods and services. Therefore, this study clarified the impact of carbon taxes on household consumption considering the difference of income groups in Japan. Our calculations were based on a model in which changes in consumption behavior were endogenously taken into account. The results showed 0.91 % more decrease in expenditure for lower-income groups than for higher-income groups, indicating that the impact of the tax is greater for the low-income group. This is attributed to the difference in household consumption structure. Lower-income households are less flexible to change their consumption patterns and they adapt to the significant price change in light- and heat-related goods and services by reducing their expenses on other consumption items that are less indispensable for their daily lives.