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Disclaimer: I do not have a formal education in economics

Here is the idea of my hypothetical policy: graduated over a period, say about 10 years or longer, the income tax is phased out and a carbon tax is implemented, such that the revenue lost from the income tax is gained by the carbon tax.

Possible strengths:

  • Increased consumption
  • Increased incentive for the public to invest in renewable energy
  • Increasing the weight of the penalty of wasted fuel.

Possible weaknesses

  • Reduction of the tax base
  • Unequal tax burden on oil companies, and those that rely heavily on oil
  • The potential that the graduated increase in carbon tax and decrease in income tax will not be fulfilled (non-cooperation).

Are there any weaknesses, that I, in my limited economic understanding, have overlooked?

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  • $\begingroup$ Immediate thoughts include: a higher burden on poor people, since income taxes are usually progressive; the possibility that people work less time (an income effect if leisure is a normal good) or work less efficiently (since they now avoid carbon-based inputs); distortions to international trade if other countries have no or different carbon taxes. $\endgroup$ – Henry Feb 23 '17 at 8:48
  • $\begingroup$ Leisure being a normal good is not sufficient to get a reduction in working hours, you also got a substitution effect going on there... $\endgroup$ – Tobias Feb 23 '17 at 12:00
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Prominent economist Greg Mankiw has been a prominent advocate of the kind of change you describe (he invites people to join "The Pigou Club", named for Arthur Pigou who first proposed these kinds of corrective taxes).

You can find a nice, non-technical summary of his arguments here. In particular, Makiw deals with some of the weaknesses you identify above and argues that they shouldn't be too much cause for concern.

Wikipedia has an article that lists other prominent economists who have jooined the Pigou Club by publicly advocating for a shift towards carbon or similar taxes (including links to many articles where the issue is disccused. It is here.

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  • $\begingroup$ I'm not sure how this answers the actual question asked, which was about any specific weaknesses in the policy, that the OP had not identified. But then again, the OP has accepted this answer, which means that they do feel it answers the question. Colour me confused. $\endgroup$ – EnergyNumbers Feb 27 '17 at 12:20
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I think it's broadly a good idea; but as you've asked specifically for the downsides, here you are:

  • Having a steadily increasing carbon tax can actually accelerate the rate of investment in fossil fuel extraction, thus strengthening that lobby. That's because, with forward visibility of higher future carbon prices, it's better to extract now than in a decade's time.

  • Having a constantly-changing tax basis adds uncertainty and administrative complexity.

  • Tax revenue would decrease as greenhouse-gas emissions decline, depleting the public purse.

  • It adds delay. We need rapid action now, so there's no good reason to wait a decade before a carbon tax goes into full effect.

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  • $\begingroup$ My choice was based on the weaknesses in the Pigouvian taxation. Admittedly, Ubiquitous's answer was broad; I accepted it based on immediacy. If I could accept two answers, I would do so. My reasoning in asking for downsides was so that if I was asked to defend my idea, I would have an understanding of the arguments that could be made. Thank you for answering! $\endgroup$ – BarocliniCplusplus Feb 27 '17 at 14:44

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