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Cash transfers for pro-poor carbon taxes in Latin America and the Caribbean

An Author Correction to this article was published on 27 June 2022

Abstract

Carbon taxes are advocated as efficient fiscal and environmental policy tools, 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 programmes have been established as some of the most efficient poverty-reducing policies used in developing countries. We quantify how governments could mitigate negative social consequences of carbon taxes by expanding the beneficiary base or the amounts disbursed with existing cash transfer programmes. We focus on Latin America and the Caribbean, a region that has pioneered cash transfer programmes, 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 trade-offs for governments choosing who and how much to compensate.

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Data availability

Households surveys for all countries but Guatemala and Honduras are readily available online (Supplementary Table 1). Input–output tables from the GTAP database are available for a fee from https://www.gtap.agecon.purdue.edu/

Code availability

The code used to simulate the impact of different carbon redistribution schemes is available at https://github.com/walshb1/LAC_carbon_taxes_vogtschilb_etal_natsust

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Acknowledgements

This paper is dedicated to the memory of Sofia del Risco Bravo. We acknowledge funding support from the Inter-American Development Bank (projects no. RG-T2728 and RG-E1563). K.F. acknowledges funding support from the University of Maryland’s BSOS Dean’s Research Initiative Award. Y.L. acknowledges funding support from the National Natural Science Foundation of China (grant no.71974186) and the National Key Research and Development Program of China (grant no. 2016YFA0602500). We thank M. L. Oliveri, P. Keefer, the crowd at Bethany Beach and the participants of an IDB seminar of the Carbon Pricing Leadership Coalition, World Bank’s International Research Conference on Carbon Pricing 2019, for useful comments and feedback. The opinions expressed in this paper are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors or the countries they represent.

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A.V.-S., B.W. and K.F. designed the research; A.V.-S, Y.L., K.F., L.D.C., D.Z. and M.R. prepared the data; A.V.-S., B.W. and K.F. conducted the analyses; A.V.-S., B.W., K.F., L.D.C., Y.L., D.Z., M.R. and K.H. wrote the paper.

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Correspondence to Kuishuang Feng.

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Supplementary Methods, Figs. 1–99 and Tables 1–34.

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Vogt-Schilb, A., Walsh, B., Feng, K. et al. Cash transfers for pro-poor carbon taxes in Latin America and the Caribbean. Nat Sustain 2, 941–948 (2019). https://doi.org/10.1038/s41893-019-0385-0

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