Agricultural Carbon Taxation, Food Prices, and Financial vulnerability: An Empirical Framework with Endogenous Balance Sheets

: Pricing agricultural emissions may be necessary to meet future climate goals but can entail adverse distributional, macroeconomic, and financial effects. Existing studies show that agricultural carbon taxation affects food prices and farm profitability yet largely abstract from balance-sheet effects. We contribute to this literature by developing an empirical Ecological Stock-Flow-Consistent Input-Output model with endogenous agricultural balance sheets, using Danish national accounts and farm-level financial data from 1995 to 2020. We compare carbon-tax designs that differ in how the tax burden is distributed between farmers and consumers. We find that financial vulnerability arise when farmers bear most of the carbon-tax burden under high interest rates, as higher debt servicing costs compress agricultural profits through balance-sheet feedback effects. We show that lowering interest rates mitigates these risks, allowing farmers to bear a larger share of the carbon-tax burden while creating room for compensating consumers facing higher food prices.