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Optimal Fiscal Policy in a Climate-Economy Model with Heterogeneous Households

Thomas Douenne et al.

The Economic Journal2026https://doi.org/10.1093/ej/ueag006article
AJG 4ABDC A*
Weight
0.50

Abstract

We study optimal fiscal policy to address climate change and inequality. We theoretically characterise optimal carbon and income taxes and quantify them for the US economy with a climate model calibrated to DICE. In contrast to the representative-agent setting, we find that (i) tax distortions have a negligible effect on the optimal carbon tax; (ii) inequality only slightly reduces it; (iii) the revenue from carbon taxes is optimally split about equally between reducing tax distortions and increasing transfers. Unlike the double-dividend policy, optimal carbon taxation has progressive welfare effects and low-income households benefit even in the short run.

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https://doi.org/https://doi.org/10.1093/ej/ueag006

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@article{thomas2026,
  title        = {{Optimal Fiscal Policy in a Climate-Economy Model with Heterogeneous Households}},
  author       = {Thomas Douenne et al.},
  journal      = {The Economic Journal},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1093/ej/ueag006},
}

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Optimal Fiscal Policy in a Climate-Economy Model with Heterogeneous Households

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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