Abstract:*

I study how the speed of carbon-tax phase-in interacts with revenue recycling. Front-loaded taxes cut cumulative emissions earlier and meet climate targets with a lower peak tax, limiting future wage and GDP losses. But rapid implementation can raise short-run resistance: with household adjustment frictions, especially among low-income households, green technology adoption is delayed, so households face higher energy costs during transition. I quantify this trade-off in a heterogeneous-agent GE model with costly household electrification under financing frictions. I compute welfare by income and age across different recycling schemes in quantitative policy experiments and isolate the role of electrification frictions. Rapid phase-in worsens short-run welfare, particularly for low-income households, because taxes rise before electricity sector productivity gains materialize, causing deeper temporary wage declines. Over the long run, faster phase-in improves decarbonization, GDP, and aggregate welfare. The recycling instrument matters: lump-sum transfers protect constrained households better than subsidies, without hindering future growth if introduced quickly.

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This will be a hybrid seminar. If you are interested in joining this seminar, please send an email to the secretariat of ASF at asf-feb@uva.nl.