Climate policy and fiscal constraints: Do tax interactions outweigh carbon leakage?
AbstractClimate policymaking faces twin challenges of carbon leakage and public sector revenue requirements. A large literature advocates the use of CO2 pricing and recycling the revenues to lower distorting taxes as a way to minimize costs. In this paper, we explore the implications of labor tax interactions for cost-effectiveness of border adjustments and other measures to cope with leakage. We find that, for plausible values of labor supply elasticities, the cost savings from revenue recycling are significant—from 15 to 25%. The cost savings from anti-leakage measures are generally smaller, but also significant, particularly for small coalitions or more binding reduction targets. Tax interactions further enhance the cost savings from border adjustments, but make other measures like rebates or exemptions less attractive.
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Bibliographic InfoArticle provided by Elsevier in its journal Energy Economics.
Volume (Year): 34 (2012)
Issue (Month): S2 ()
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Web page: http://www.elsevier.com/locate/eneco
Climate policy; Carbon leakage; Tax interactions; Border adjustments;
Other versions of this item:
- Fischer, Carolyn & Fox, Alan K., 2012. "Climate Policy and Fiscal Constraints: Do Tax Interactions Outweigh Carbon Leakage?," Discussion Papers dp-12-19, Resources For the Future.
- Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- Q37 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Issues in International Trade
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