American Economic Review Vol. 116 No. 9 2026
The Environmental Bias of Corporate Income Taxation
Abstract
We study the relationship between corporate income taxation and carbon dioxide (CO 2 ) emissions in the United States. We show CO 2 -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 multisector 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.
- DOI
- 10.1257/aer.20241765
- Volume
- 116
- Issue
- 9
- Pages
- 3510-3551
- Language
- en
- Sources
- crossref openalex