Revenue-Neutral Tax-Subsidy Policy for Carbon Emission Reduction

by Gregmar I. Galinato and Hulbert Hall

- In light of the political unpopularity of carbon taxes in the United States, we develop a model for a revenue neutral price instrument that maximizes social welfare subject to an exogenously determined net tax revenue target. This approach may be more palatable because it has the potential to change the relative price of the low-carbon and highcarbon components of blended fuel while limiting increases in taxes and motor fuel prices.

Galinato, G.I. and H. Hall (2009). "Revenue-Neutral Tax-Subsidy Policy for Carbon Emission Reduction." Washington State University, School of Economic Sciences, WP 2008-22, February.