Sardone, AlessandroLeibniz-Institut für Wirtschaftsforschung Halle2026-03-042025https://epflicht.bibliothek.uni-halle.de/handle/123456789/1178341939094348urn:nbn:de:gbv:3:2-123456789-1178340This paper examines the macroeconomic and distributional effects of the European Union's transition to Net Zero emissions through a gradually increasing carbon tax. I develop a New Keynesian Environmental DSGE model with two household types and distinct energy and non-energy sectors. Five alternative uses of carbon tax revenues are considered: equal transfers to households, targeted transfers to Hand-to-Mouth households, subsidies to green energy firms, and reductions in labor and capital income taxes. In the absence of technological progress, the carbon tax policy induces a persistent increase in energy prices and a reduction in GDP, investment, and consumption. Headline inflation falls below zero in the medium run, reflecting weaker aggregate demand. Distributional outcomes vary significantly depending on the implemented revenue recycling scheme: targeted transfers are the most progressive but entail larger macroeconomic costs, while subsidies and tax cuts mitigate output and investment losses but are less effective in narrowing the consumption gap. A limited foresight scenario, in which agents learn about policy targets sequentially, generates more volatile adjustment paths and temporary inflationary spikes around announcements, but long-run outcomes remain close to the baseline.1 Online-Ressource (III, 67 Seiten, 2,62 MB) : Diagrammeenghttp://rightsstatements.org/vocab/InC/1.0/330