This paper is the first attempt, to the best of our knowledge, to study the impact of a carbon tax by means of a heterogeneous agents model. The objectives of the paper are two: i) To assess how the results of a representative agent model compare to those coming from a model accounting for heterogeneity across agents when evaluating aggregate economic and environmental impacts of a carbon tax; ii) To assess the distributional implications of a carbon tax (and equivalent cap) and how they can be mitigated through different recycling schemes or allocations.


Suggested citation: Bosetti, V., M. Maffezzoli (2013), ‘Taxing Carbon under Market Incompleteness’, Nota di Lavoro 72.2013, Milan, Italy: Fondazione Eni Enrico Mattei.