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

Abstract

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
Volume18
Issue number5
DOIs
Publication statusPublished - 2016

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taxation
taxes
local tax
public spending
costs
equity
Carbon price
Negative externalities
Tax
Costs
Externalities
Local taxes
Equity
Government
Distortionary taxation
Uniformity
Global warming
Public spending
Carbon tax
Taxation

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D'Autume, A. ; Schubert, K. ; Withagen, C.A.A.M. / Should the carbon price be the same in all countries?. In: Journal of Public Economic Theory. 2016 ; Vol. 18, No. 5. pp. 709-725.
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Should the carbon price be the same in all countries? / D'Autume, A.; Schubert, K.; Withagen, C.A.A.M.

In: Journal of Public Economic Theory, Vol. 18, No. 5, 2016, p. 709-725.

Research output: Contribution to JournalArticleAcademicpeer-review

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