This paper investigates the efficiency and distributional implications of a carbon tax as part of a fiscal reform package in the United States. We develop a new dynamic general-equilibrium Auerbach-Kotlikoff-type overlapping generations (OLG) model in which growth is fully endogenous, based on increasing specialization of sector-specific capital varieties. The model further includes a disaggregated production structure, including energy sector detail and advanced low- or zero-carbon energy technologies, and detail on government taxes and spending. We find that both the overall cost of including a carbon tax in a fiscal reform package and the distribution of that cost across generations vary significantly based on what other tax and spending measures are included in that package, and vary quite substantially based on which of those measures the carbon tax revenue is used to offset.

Keyword(s): Carbon Tax, Climate Policy, Fiscal Policy, Endogenous Growth, Overlapping Generations.