The Rich, The Poor, and The Carbon Tax

Pablo Garcia Sanchez and Olivier Pierrard

No 2026006, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: Recent empirical evidence reveals an income gradient in support for climate action: individuals in wealthier countries are less willing to pay than those in poorer ones. What explains this gradient, and what does it imply for international cooperation to protect the Earth’s climate? We answer these questions using a heterogeneous-country integrated assessment model formulated as a mean field game and calibrated to historical economic and climate data. Poorer countries, facing higher marginal utility of consumption, cut consumption less to cushion the decline in capital accumulation caused by climate damages. As a result, they suffer larger relative losses from climate change and gain more from mitigation, making them more inclined to accept a global carbon tax. This gradient has stark implications for cooperation: even when a carbon tax large enough to contain temperature increases benefits most countries, the richest might oppose. Redistributing global carbon tax proceeds uniformly across countries or recycling them as green investment subsidies need not overcome this reluctance.

Keywords: Neoclassical Growth Model; Mean Field Game; Climate Policy (search for similar items in EconPapers)
JEL-codes: C61 H23 Q50 (search for similar items in EconPapers)
Date: 2026-02-27
New Economics Papers: this item is included in nep-ene, nep-env, nep-gth and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2026006

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