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On the aggregate and distributional effects of carbon taxation in Portugal

Cezar Santos
Zeina Hasna
Publication Year 
Drawing on the model developed by Cavalcanti et al. (2021), we quantify the aggregate and distributional effects of a carbon tax in Portugal. Carbon taxation induces changes in relative prices and reallocation of inputs, including labour.We target a decline in emissions of a 30 to 40%, required for Portugal to achieve its original Paris Agreement pledge. This entails at most a 1.7% drop in output. As the Paris Agreement targets have been revised over time, we also estimate the carbon tax needed for Portugal to achieve a 70% decline in emissions, which stands at 80.4%. We find that the effects are asymmetric across sectors and individuals, with those workers with a comparative advantage in dirty energy sectors who do not reallocate being hit harder.
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