Forthcoming in the AER: "The Environmental Bias of Corporate Income Taxation" by Luigi Iovino, Thorsten Martin, and Julien Sauvagnat.
www.aeaweb.org
(Forthcoming Article) - We study the relationship between corporate income taxation and carbon dioxide (CO2) emissions
in the U.S. We show that CO2-intensive firms benefit more from the tax advantage of
debt, and pay lower income taxes on their capital income. Building on these new facts, we
provide evidence that a cut in the corporate income tax rate leads to a larger expansion of clean
firms. We develop a multi-sector general equilibrium model that accounts for our evidence and
quantify the impact of corporate tax reforms on aggregate emissions. A policy that eliminates
the tax advantage of debt could reduce aggregate emissions without affecting GDP.
