Revenue Recycling Mechanism and Distributional Welfare Effects of Carbon Pricing: Evidence from British Columbia's Carbon Tax, 2008-2020

This study investigates distributional welfare incidence of British Columbia's carbon tax across household income quintiles under three revenue recycling mechanisms over 2008-2020 within the context of environmental economics and public finance, an area of growing scientific importance given its implications for carbon pricing policy design, revenue recycling mechanism selection, and distributional impact assessment for climate fiscal reform. Using computable general equilibrium simulation with microsimulation distributional incidence analysis using Statistics Canada household expenditure microdata under three recycling scenarios, we examine carbon tax regressive direct incidence offset by lump-sum dividend recycling, with degree of progressivity determined by dividend versus tax-cut versus general revenue recycling mechanism in 18,420 households from Statistics Canada Survey of Household Spending pooled cross-sections 2008-2020 linked to BC carbon tax incidence estimates drawn from British Columbia household-level consumption and income data with carbon tax rate schedule 2008-2020 (C$10 to C$45/tonne CO2). Results indicate that lump-sum dividend recycling produces net progressive incidence with Q1 welfare gain of +C$412/year at C$45/tonne versus net regressive outcome under income tax cut recycling (Q1: -C$284/year) (p < 0.001), with +C$412 annual welfare gain for lowest quintile under dividend recycling vs. -C$284 under income tax cut as the primary quantitative benchmark. Concordance between primary and confirmatory measurement approaches exceeded 93%, validating the analytical framework. These findings contribute empirically to environmental economics and public finance and carry actionable implications for the design of programs and policies targeting carbon pricing policy design, revenue recycling mechanism selection, and distributional impact assessment for climate fiscal reform.