Tax mix change to reduce greenhouse gas emissions
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A pollution tax or emissions trading scheme places a price on greenhouse gas
emissions. This price also is an additional indirect tax and a government revenue
windfall. To restore distributional equity, to avoid compounding the efficiency costs of
existing distorting taxes and to maintain macroeconomic stability, it is argued that
most of the revenue windfall be recycled to households as lower income tax rates and
higher social security payments. As the carbon price rises over time, new and larger
tax mix change packages will be required.