Cash Transfers for Pro-poor Carbon Taxes in Latin America and the Caribbean

Accesible PDF image
Peer Reviewed icon Peer Reviewed
Date issued
Oct 2019
Subject
Climate Change;
Climate Change Mitigation;
Poverty Reduction;
Conditional Cash Transfer;
Carbon Tax;
Income Distribution
JEL code
Q01 - Sustainable Development;
O13 - Agriculture • Natural Resources • Energy • Environment • Other Primary Products;
Q54 - Climate • Natural Disasters and Their Management • Global Warming;
H23 - Externalities • Redistributive Effects • Environmental Taxes and Subsidies;
N56 - Latin America • Caribbean;
H22 - Incidence
Country
Argentina;
Brazil;
Chile;
Colombia;
Costa Rica;
Ecuador;
Panama;
Paraguay;
Peru;
Uruguay;
El Salvador;
Honduras;
Guatemala;
Nicaragua;
Mexico
Category
Working Papers
Carbon taxes are advocated as efficient fiscal and environmental policies, but they have proven difficult to implement. One reason is that carbon taxes can aggravate poverty by increasing prices of basic goods and services such as food, heating, and commuting. Meanwhile, cash transfer programs have been established as some of the most efficient poverty-reducing policies used in developing countries. Here, we quantify how governments can mitigate negative social consequences of carbon taxes by expanding the beneficiary base or the amounts disbursed with existing cash transfer programs. We focus on Latin America and the Caribbean, a region that has pioneered cash transfer programs, which aspires to contribute to climate mitigation, and faces inequality. We find that 30% of carbon revenues could suffice to compensate poor and vulnerable households on average, leaving 70% to fund other political priorities. We also quantify tradeoffs for governments choosing who and how much to compensate.
Generative AI enabled