We quantify how a carbon tax would affect firms, regional economies, and small banks. We find that the effects are heavily concentrated in a few sectors. Even though we follow emissions down the production chain, industries that generate a large fraction of emissions at the source are still among the most affected. The effects are also highly concentrated in a few regions. The regional effects depend on how much the affected industries dominate the local economy, but the effects are more widespread when low-emitting firms can’t easily substitute away from inputs that rise in price. A carbon tax would also burden community banks operating in counties with a large share of high-emitting industries, but losses at small banks are on average moderate.
This article appeared in the Fourth Quarter 2023 issue of Economic Insights. Download and read the full issue.View the Full Article