Double dividend of the carbon tax in Japan: Can we increase public support for carbon pricing?

Kenji Asakawa, Kouichi Kimoto, Shiro Takeda, Toshi H. Arimura

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

Carbon pricing is difficult to introduce in many countries because it is not easy to obtain public support for carbon pricing due to the burden associated with it. One way to overcome this difficulty is to rely on the double dividend of a carbon tax. If a government uses revenue from a carbon tax to reduce existing distorting taxes, such as corporate taxes or labor taxes, a carbon tax can improve economic efficiency while reducing greenhouse gas (GHG) emissions. This chapter examines the net burden of a carbon tax with revenue recycling (RR) for two types of stakeholders: firms and households. Using dynamic computable general equilibrium (CGE) modeling, we examine the carbon prices needed to achieve the emission targets set for 2030 and 2050. Then, we simulate two types of RR: corporate tax reduction and a reduction in social security payments. We compare the benefit of the tax reduction to the increase in the burden from the carbon tax in scenarios for 2030/2050. In the scenario of corporate tax reduction, by selecting firms from the land transportation sector and power sector, we examine how profit changes due to the carbon tax. We find that the tax burden for a firm in the land transportation sector can be eased greatly with the corporate tax reduction. In the scenario of the social security payment reduction, we find that some households are better off under carbon pricing despite expenditure increases due to the carbon tax. Thus, we show that RR can increase support for the carbon tax.

Original languageEnglish
Title of host publicationEconomics, Law, and Institutions in Asia Pacific
PublisherSpringer Japan
Pages235-255
Number of pages21
DOIs
Publication statusPublished - 2021

Publication series

NameEconomics, Law, and Institutions in Asia Pacific
ISSN (Print)2199-8620
ISSN (Electronic)2199-8639

ASJC Scopus subject areas

  • Business and International Management
  • Economics, Econometrics and Finance(all)
  • Law

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