Should the carbon price be the same in all countries?

Antoine d'Autume, Katheline Schubert and Cees Withagen

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

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 unique 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 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 uniqueness 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

Keywords: Carbon price; second best; Pigovian taxation (search for similar items in EconPapers)
JEL-codes: H21 H23 H41 H71 H87 Q5 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2011-08
New Economics Papers: this item is included in nep-env
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ftp://mse.univ-paris1.fr/pub/mse/CES2011/11076.pdf (application/pdf)

Related works:
Journal Article: Should the Carbon Price Be the Same in All Countries? (2016)
Working Paper: Should the Carbon Price Be the Same in All Countries? (2016)
Working Paper: Should the Carbon Price Be the Same in All Countries? (2016)
Working Paper: Should the Carbon Price Be the Same in All Countries? (2016)
Working Paper: Should the carbon price be the same in all countries ? (2011)
Working Paper: Should the carbon price be the same in all countries ? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:11076

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