A Carbon Wealth Tax: Modelling, Empirics, and Policy

Neves, J.P.B. & Semmler, W. (2025). A Carbon Wealth Tax: Modelling, Empirics, and Policy. Jahrbücher für Nationalökonomie und Statistik 10.1515/jbnst-2024-0078.

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Abstract

Although economists widely advocate carbon pricing as an effective solution to reduce carbon emissions, this mechanism has had so far limited effects. This paper proposes a new type of tax to help finance (and accelerate) the green transition. A carbon wealth tax (CWT) is proposed to be levied on carbon-intensive (brown) wealth rather than primarily on carbon-intensive goods. We consider tax implementation issues such as tax base, incidence, and efficiency. Moreover, we analyze the impacts of such a tax scheme by setting up a model of asset pricing and dynamic portfolio decisions. Green and carbon-intensive returns used in the model are calibrated with low-frequency returns on stock prices between 2010 and 2021. We find that such a tax and subsidy scheme is a feasible and effective instrument in speeding up the transition to a greener economy, particularly in protracted periods of economic contraction. Our approach also brings a new perspective to the wealth inequality discussions.

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