This paper examines the distributional effects of a hypothetical carbon tax in Ethiopia using a computable general equilibrium model. The study finds that a carbon tax would be regressive in all scenarios, with the lowest income households experiencing a larger percentage increase in their cost of living than higher income households. The carbon tax revenue would be recycled through various channels, including increased government spending, reduced income taxes, and increased transfer payments to low-income households. The study suggests that the design of the carbon tax and the allocation of the revenue are important factors in determining its distributional impact.
