Measuring Economic Activity in the Presence of Superstar MNEs

Abstract

Residential, industrial, and commercial carbon dioxide emissions vary substantially across cities and sectors; this variation has led to concerns about the distributional consequences of carbon pricing policies. I develop and estimate a spatial equilibrium model to quantify the incidence from a stylized carbon tax across cities, sectors, and education groups in the U.S. The model features heterogeneous households, firms in multiple locations, sectors that use energy and labor as imperfect substitutes, and region-specific carbon emissions rates due to differences in the fuel mix used to generate electricity. A uniform carbon tax has substantial distributional effects, with uneducated workers in manufacturing bearing the greatest burden. The share of the total tax burden attributable to coal-fired electricity varies significantly across regions. I also use the model to demonstrate that progressive compensation leads to a decline in aggregate carbon emissions relative to flat transfers, due to a reallocation of workers into cities and sectors that are less carbon-intensive.