Abstract
<title>Abstract</title> <p>This study quantitatively examined the economic and distributional impacts of converting Japan’s existing fossil fuel taxes into a pure upstream carbon tax, focusing on household consumption by income decile and region. Using input-output and household survey data, I analyzed three policy scenarios: (1) a revenue-neutral carbon tax (¥3,309/t-CO₂) replacing gasoline and diesel excise taxes; (2) a high-rate carbon tax (¥10,000/t-CO₂); and (3) a high-rate tax combined with zero consumption tax on food, petroleum, and electricity (“the net effect scenario”). Results indicated that under the high-burden scenario (2), carbon-intensive industries like electricity and steel experienced significant price increases, while gasoline and diesel prices fell due to excise tax removal. Although the high-rate tax was notably regressive—disproportionately affecting low-income households and colder regions with high heating demands—targeted consumption tax exemptions substantially reduced this burden. The net effect scenario (3) effectively neutralized regressivity, providing disproportionate expenditure relief to low- and middle-income households and vulnerable groups in regions such as Hokkaido and Tohoku. These findings demonstrated that targeted consumption tax reductions effectively mitigated both the regressivity and the regional disparities driven by a high-rate carbon tax. Furthermore, because the simulated carbon tax generated substantial revenue, this approach enhanced social acceptability and political feasibility from a fiscal perspective. Ultimately, these results contributed to policy designs that ensured both allocative efficiency and distributional equity for Japan’s decarbonization goals.</p>