What Factors Drive Inequalities in Carbon Tax Incidence? Decomposing Socioeconomic Inequalities in Carbon Tax Incidence in Ireland

Carbon taxes increase the cost of necessary household energy expenditures. In many developed countries,carbon taxes are regressive as they comprise a greater proportion of a poorer household’s income. Certainsocioeconomic groups are more negatively affected by these impacts than others. While inequality of inci-dence by income group has received great attention in the literature, a gap exists to quantify the inequalityassociated with socioeconomic characteristics. This information is policy-relevant as it may inform the mosteffective means to offset negative welfare impacts through changes to taxes and/or social transfers. Thispaper provides this contribution. First, the inequality of carbon tax incidence across the income spectrumis quantified using the concentration index methodology. A subsequent multivariate decomposition quan-tifies the contribution each socioeconomic factor makes towards this inequality of incidence. This is carriedout for electricity, motor fuel and all other home fuels to elicit variation of socioeconomic incidence bysource. While income contributes a great deal towards inequality of incidence for other home fuels, othersocioeconomic characteristics are the primary determinants of electricity and motor fuel-related carbon taxincidence. The relative importance of each characteristic in determining regressive impacts is quantified andthis varies by carbon tax source