This paper studies the effects of a carbon tax in a quantitative macro model in which individuals' mortality is endogenous, and is impacted by their exposure to air pollution. By reducing the demand for energy, a carbon tax reduces air pollution and, as a result, decreases individual mortality. The magnitude of such reduction in mortality varies with individual age and education. I formalize and quantify these effects using an overlapping generations model with individuals that are heterogeneous in their level of education, and analyze aggregate and distributional effects of a carbon tax on welfare. Consistently with previous findings in the carbon tax literature, the model predicts that if revenues are not rebated ("thrown to the ocean"), the tax decreases aggregate welfare and negatively affects all individuals, impacting the least educated population the most. However, the costs of the tax in terms of welfare are significantly lower when the effect on mortality is accounted for. In contrast to some of the results in the carbon tax literature, the model with endogenous mortality predicts that even if revenues are rebated as lump-sum transfers, more educated individuals experiencing lower welfare losses from this policy, making the tax even more regressive. Endogenous mortality is an important contributor to these welfare effects because decreases in mortality resulting from air pollution reduction help to offset the welfare costs of the carbon tax, both at the aggregate and individual level. In terms of regressivity, even when less educated individuals experience larger gains in terms of life expectancy, more educated individuals experience larger welfare gains since they have larger baseline levels of consumption, and will enjoy that larger consumption for an extended period of life. Quantitatively, a $40 carbon tax reduces air pollution by about 2.5% for each type of individual, and increases life expectancy in about four months for individuals with high school or less education, and in about 3 months for individuals with some college or more. Finally the tax decreases aggregate output by 1.5% to 2%, depending on whether or not revenues are rebated back.
This paper documents how unwanted childbirths relates to women's education and wages. Unwanted childbirths, especially early in life, can affect women's education and labor market decisions. Using data from the National Longitudinal Survey of Youth 1979, I document that on average, mothers whose first childbirth was unwanted have lower levels of education, lower wages, and have their first childbirth at younger ages compared to the rest of the mothers. However, this difference is not statistically significant once I introduce a broad set of controls.