A politically determined carbon tax with targeted public good investments and individual voter investments to change their fossil-fuel reliance

In this paper we set up a model to consider how individual voter characteristics determine their policy preferences over the level of a tax on fossil energy. We introduce the possibility for voters to invest to change their reliance on fossil versus clean energy. The effect of this on preferred tax rates are, in general, ambiguous. If a tax would be high enough to make fossil energy more expensive than clean, then this would induce investment with the direct effect of increasing support for higher tax rates. When taking the full general equilibrium effects into account, the effects are again ambiguous but we derive suffcient conditions under which the preferred tax increases for all voters.

Gars, J., G. Engström, and T. Lindahl. 2026. Beijer Discussion Paper 286: A politically determined carbon tax with targeted public good investments and individual voter investments to change their fossil-fuel reliance. Beijer Discussion Paper Series.