How to Recycle Carbon-Tax Revenue in Household Transportation: Welfare versus Clean-Vehicle Adoption
with Sylvain Eloi Dessy and Arouna Ogouchoni Lekoyo (submitted)
Abstract: How carbon-tax revenue is recycled shapes a trade-off between household welfare and the clean-vehicle transition, and in imperfectly competitive markets it also functions as market design, reshaping markups and prices. In a Canadian-calibrated general-equilibrium model with heterogeneous households and Bertrand competition in automobiles, we compare lumpsum rebates, labor-income tax reductions, and green car rebates under a common emissions target. Under uniform recycling, no instrument delivers both margins: lump-sum rebates raise welfare and protect lower-income households but barely lift clean-vehicle shares; labor-income tax reductions are near-neutral; green car rebates maximize adoption and markup compression yet lower welfare. Mixed designs combining a universal lump-sum floor with a moderate, possibly means-tested green car rebate deliver both—if the rebate share stays moderate; means-testing alone cannot. A fixed-unit-margin decomposition shows the competitive-repricing channel is real but secondary: fiscal incidence, not market power, governs the welfare ranking.
