Forming a Majority Coalition for Carbon Taxes Under a State-Contingent Updating Rule

Ross McKitrick and Jamie Lee
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Jamie Lee: Department of Economics and Finance, University of Guelph

No 1610, Working Papers from University of Guelph, Department of Economics and Finance

Abstract: Uncertainty and political polarization over global warming make it difficult to achieve a stable majority coalition supporting carbon taxes, especially since expectations about the future optimal values sharply diverge. We present an alternative approach in which the tax path is not announced in advance but is set to track observed future temperatures. Agents thus form expectations which imply the tax path will be correlated with their preferred price trajectory. Whereas greater variance in beliefs about future global warming undermines support for a compromise policy, the state-contingent proposal attracts majority support irrespective of the divergence of views, and even has robustness properties to strategic voting by dishonest agents.

Keywords: Carbon tax; State-contingent model; Majority voting; Climate change; Uncertainty (search for similar items in EconPapers)
JEL-codes: D72 H23 Q54 Q58 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2016
New Economics Papers: this item is included in nep-cdm, nep-ene, nep-env and nep-pol
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Journal Article: Forming a Majority Coalition for Carbon Taxes under a State-Contingent Updating Rule (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:gue:guelph:2016-10

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