Tax Distortions and Global Climate Policy

Mustafa H. Babiker, Gilbert Metcalf () and John Reilly

No 9136, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We consider the efficiency implications of policies to reduce global carbon emissions in a world with pre-existing tax distortions. We first note that the weak double-dividend, the proposition that the welfare improvement from a tax reform where environmental taxes are used to lower distorting taxes must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion, need not hold in a world with multiple distortions. We then present a large-scale computable general equilibrium model of the world economy with distortionary taxation. We use this model to evaluate a number of policies to reduce carbon emissions. We find that the weak double dividend is not obtained in a number of European countries. Results also demonstrate the point that the interplay between carbon policies and pre-existing taxes can differ markedly across countries. Thus one must be cautious in extrapolating the results from a country specific analysis to other countries.

JEL-codes: H2 Q2 (search for similar items in EconPapers)
Date: Written
Note: ED PE
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Related works:
Working Paper: Tax Distortions and Global Climate Policy (2002)
Journal Article: Tax distortions and global climate policy (2003)
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