Should the carbon price be the same in all countries?

A. D'Autume, K. Schubert, C.A.A.M. Withagen

Research output: Contribution to JournalArticleAcademicpeer-review


International differences in fuel taxation are huge, and may be justified by different local negative externalities that taxes must correct, as well as by different preferences for public spending. In this context, should a worldwide uniform carbon tax be added to these local taxes to correct the global warming externality? We address this question in a second best framework à la Ramsey, where public goods have to be financed through distortionary taxation and the cost of public funds has to be weighted against the utility of public goods. We show that when lump-sum transfers between countries are allowed for, the second best tax on the polluting good may be decomposed into three parts: one, country-specific, dealing with the local negative externality, a second one, country-specific, dealing with the cost of levying public funds, and a third one, global, dealing with the global externality and which can be interpreted as the carbon price. Our main contribution is to show that the uniformity of the carbon price should still hold in this second best framework. Nevertheless, if lump-sum transfers between governments are impossible to implement, international differentiation of the carbon price is the only way to take care of equity concerns.
Original languageEnglish
Pages (from-to)709-725
JournalJournal of Public Economic Theory
Issue number5
Publication statusPublished - 2016


Dive into the research topics of 'Should the carbon price be the same in all countries?'. Together they form a unique fingerprint.

Cite this