Carbon Pricing and Inequality: A Normative Perspective

Thu, 01 Jan 2026 00:00:00 +0000

This paper quantifies the sources and distributional consequences of unexpected carbon price changes for European households using a money-metric welfare framework. The motivation is stark: while carbon taxes enjoy broad support among economists, they face persistent public opposition — exemplified by Australia’s 2014 repeal, France’s 2018 Yellow Vest protests, and the 2025 rollback of Canada’s consumer carbon tax. The authors ask whether average welfare losses are unusually large, and whether the burden falls disproportionately on vulnerable groups, both questions with direct implications for understanding and reducing political resistance.

Are Inflationary Shocks Regressive? A Feasible Set Approach

Research Question. The paper asks whether inflationary shocks are regressive, and demonstrates that the answer depends critically on the source of the shock. A single aggregate inflation statistic conceals radically different distributional consequences depending on whether inflation is driven by an oil supply contraction or by expansionary monetary policy.

Framework. The authors develop a “feasible set approach” grounded in the envelope theorem. They show that the first-order money-metric welfare effect of any macroeconomic shock on a household is summarized by the present discounted value of changes to five components of the household’s budget constraint: (1) consumption prices, (2) wage income, (3) asset dividends, (4) asset prices, and (5) government transfers. Because the envelope theorem implies that endogenous substitution responses are not welfare-relevant to a first order, no assumption about the utility function’s form or the economy’s general equilibrium structure is required. The framework is valid for generic stationary shocks that do not directly shift household preferences.

Conor Walsh | Macro Paper Warehouse

Carbon Pricing and Inequality: A Normative Perspective

Are Inflationary Shocks Regressive? A Feasible Set Approach