Carbon taxes generate 56 percent larger losses in rural areas
A carbon tax cutting emissions by 10 percent causes 56 percent higher welfare losses in rural areas than in Paris, according to a Banque de France study. Researchers attribute the gap to higher fossil fuel dependency and housing-related mobility frictions.
Trapped by geography and housing
Rural households spend 2.8 times more on fossil fuels than Parisians (8.7 percent of consumption versus 3.1 percent) due to larger living spaces (105.6 square meters versus 64.0) and car dependency.
Rural workers are also employed in firms emitting 2.7 times more greenhouse gases than Parisian firms.
In a spatial general-equilibrium model targeting a 10 percent emissions cut, rural welfare drops by 3.1 percent in consumption-equivalent terms compared to 2.0 percent in Paris.
While household carbon taxes burden lower-income rural budgets directly, taxes on firms lower rural wages by 4.8 percent versus 0.7 percent in Paris, compounding regional income losses.
The limits of uniform rebates
Mobility frictions prevent rural homeowners, who make up 80 percent of the rural population, from relocating to less exposed urban areas.
Redistributing carbon tax revenues through uniform lump-sum rebates reduces inequality across income quintiles but exacerbates spatial divides: rural households experience a 0.9 percent welfare loss, while Parisians gain 0.1 percent.
Only targeted transfers based jointly on income and geography halve welfare dispersion across regions.
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