Both subsidy and workfare policies are welfare improving relative to a model where tax revenues are rebated lump sum.
It is notable that in the judgment of this group of economists, the fairness and political benefits of a lump-sum rebate approach outweighs the potential benefits of other revenue uses.
This means the lump-sum rebate given by the state of California through its California Solar Initiative is almost entirely profit for the consumer, leaving the present value of an installed watt of photovoltaic generation capacity as substantially positive.
There are two reasons for doing so: first, because we are measuring marginal tax rates instead of average tax rates, a lump-sum rebate makes our taxes progressive; and second, because a very large fraction of the government's budget is used to finance transfers directly.
The ultimate political question seems to be whether there is greater (geographic and sectoral) political support for the Waxman-Markey (H.R. 2454) approach of substantial free allocations and targeted use of auction revenue, or if there is greater (populist) political support for the full auction combined with lump-sum rebate which characterizes the "cap-and-dividend" approach.
Sollars reminds us: "We seem to forget we tried the lump-sum tax rebate trick last year.
Other experts (economists and otherwise) therefore prefer revenue uses aside from lump-sum rebates.
The recommendation to use all carbon tax revenues for lump-sum rebates is a judgment grounded in concerns over the fairness and popularity of a carbon tax.
Sending out lump-sum rebates, as was done in spring 2008, makes less sense, as it provides little impetus for spending or production.
A first step toward a vehicle-weight tax would be to make it revenue-neutral — for example, by returning its revenue in the form of lump-sum rebates to each buyer.
In this blog I won't discuss the other 40% of allowances, which seem to be split among well-intentioned causes such as lump-sum rebates to low-income consumers, state energy efficiency programs, climate adaptation, preventing tropical deforestation, green jobs programs, and more.
