Climate policy and inequality in two-dimensional political competition

Arbeitspapier

This paper examines how income inequality can affect the polarization of heterogeneous party platforms on climate policy (here: carbon tax). The implied consequences for the uncertainty of climate policy can be relevant for risk-averse investors in "green" technologies. Households are heterogeneous with respect to income and preferences for environmentalism and preferred redistribution. A static gametheoretic model of two-dimensional political competition on a carbon tax (with distributional implications) and an income tax is combined with a model of a carbonintensive economy. For a higher inequality of pre-tax income and/or a higher salience of the issue of redistribution, polarization of the parties' carbon tax proposals in the equilibrium can increase - even if the income tax is used to counteract the increase in income inequality. This result does not depend on the progressivity of the carbon-tax revenue recycling mechanism.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ifo Working Paper ; No. 319

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies ; Capitalist Systems: Political Economy ; Pollution Control Adoption and Costs; Distributional Effects; Employment Effects ; Climate; Natural Disasters and Their Management; Global Warming
• Subject: Climate policy ; inequality ; political economy ; multidimensional political competition

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Marz, Waldemar
• Event: Veröffentlichung
• (who): ifo Institute - Leibniz Institute for Economic Research at the University of Munich
• (where): Munich
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/213593
• Last update: 10.03.2025, 11:42 AM CET