I show that when we take into account household electrification, the incidence of carbon taxes becomes age-specific and falls hardest on middle-aged, low-income households. In addition, it creates an equity–efficiency trade-off in the choice of revenue recycling instrument. In the paper, I develop a life cycle model with a discrete household electrification decision subject to financing frictions that slow adoption among low-income households, and with energy as a necessity good. The government levies a carbon tax to reduce emissions to an exogenous climate target, and recycles revenues via government spending, lump-sum rebates, renewable-electricity subsidies, or household electrification subsidies. Using renewable-electricity subsidies reduces the required peak carbon tax from roughly €340 to €210 per ton of CO2 compared to all other instruments, halving the long-run GDP loss. However, the negative welfare effects concentrate among low-income, middle-aged households, where the cost of electrifying and the cost of not electrifying intersect. On the contrary, lump-sum transfers provide insurance against the burden from electrification for low-income households, albeit at the cost of larger GDP losses. Front-loading a carbon tax while recycling revenues with subsidies hurts poor households via the electrification margin, but not with lump-sum transfers.

Presented at: MInt internal seminar University of Amsterdam; SEEMS environmental seminar University of Amsterdam; Economics internal seminar University of Vienna; QED Jamboree, University of Padua; KVS new paper session, Leiden University; 7th WCERE, Nova business school; APF International Conference on Macroeconomics and Finance 2026,  Athens University of Economics and Business

We study the welfare effects of irrational climate beliefs in the housing market. In an established macroeconomic housing model, we posit two types of households: one type which holds rational beliefs over future flood risk and another type which underestimates flood risk. Climate scepticism in the housing market increases the aggregate welfare cost of rising flood risk, which becomes concentrated among households with mistaken beliefs. Climate sceptics overinvest in coastal housing and under-save against potential flood losses, which reduces their expected welfare. Their behaviour also inflates coastal house prices in general equilibrium, which leads to allocative inefficiency and excessive building in coastal areas. Our quantitative model, calibrated to the United States, shows how climate scepticism affects welfare along the income and wealth distribution. It furthermore assesses the distributional welfare consequences of housing market policies related to flood risk, building restrictions and stricter mortgage requirements.