Global Warming Policy and Distributional Effects: A General Equilibrium Analysis1

This paper analyzes the impact of carbon taxes on the Japanese economy using an applied/computable general equilibrium model. This analysis sheds light on both the efficiency and the equity issues of these policies. The study shows that some alleviation measures, e.g. tax differentiation, might be required to ease the damages caused to energy intensive industries. Moreover, considering the regressivity of the carbon taxes, the tax revenues should be recycled at least to neutralize the adverse distributional effects of these taxes. This paper also analyzes carbon taxes not only as the instruments to internalize externalities, but as those to promote equitable distribution. This analysis reflects the present concerns of Japan. We should consider global warming policies from a broader perspective as a good opportunity to restructure the Japanese economy and society. JEL classification numbers: D58, D63, H20, Q40