Carbon taxes around the world: cooperation, strategic interactions, and spillovers

Alessandro Moro () and Valerio Nispi Landi

No 1445, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We examine the global implications of carbon taxation using a two-country environmental DSGE model, with a specific focus on the strategic interactions between countries, the case for cooperation, and the impact on the balance of payments. From a normative perspective, we show that, assuming a convex disutility of pollution, carbon taxes are strategic substitutes across countries: when one country increases carbon taxation, the other country finds it optimal to reduce it. From a positive perspective, a country imposing unilateral carbon taxation experiences a reduction in its production, a decrease in its interest rates, a depreciation of its currency on impact and an appreciation thereafter, higher debt, and equity outflows to the rest of the world.

Keywords: carbon tax; climate change; capital flows; international policy transmission; DSGE (search for similar items in EconPapers)
JEL-codes: F31 F32 F41 F42 Q58 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-dge, nep-ene, nep-env, nep-ifn and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1445_24

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