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Carbon Taxation When Climate Affects Productivity

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  • William K. Jaeger
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    Abstract

    Based on a model where climate change affects productivity, the second-best optimal carbon tax is found to exceed marginal social damage by 53% and ‘‘marginal private damage’’ (aggregate households’ willingness to pay) by 73%. Annual welfare gains are estimated at $3.58 billion when marginal damage is $40 per ton; employment also increases. A carbon tax set at the Pigouvian rate raises welfare by only $3.17 billion. The seemingly contradictory results from the ‘‘tax interaction’’ literature are shown to arise only when the optimal environmental tax is compared to ‘‘marginal private damage,’’ and only for an amenity externality.

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    File URL: http://le.uwpress.org/cgi/reprint/78/3/354
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    Bibliographic Info

    Article provided by University of Wisconsin Press in its journal Land Economics.

    Volume (Year): 78 (2002)
    Issue (Month): 3 ()
    Pages: 354-367

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    Handle: RePEc:uwp:landec:v:78:y:2002:i:3:p:354-367

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    Web page: http://le.uwpress.org/

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    Cited by:
    1. Iain Fraser & Robert Waschik, 2010. "The Double Dividend Hypothesis in a CGE Model: Specific Factors and Variable Labour Supply," Studies in Economics 1001, Department of Economics, University of Kent.
    2. Patuelli, Roberto & Nijkamp, Peter & Pels, Eric, 2005. "Environmental tax reform and the double dividend: A meta-analytical performance assessment," Ecological Economics, Elsevier, vol. 55(4), pages 564-583, December.
    3. Goodstein, Eban, 2002. "Labor supply and the double-dividend," Ecological Economics, Elsevier, vol. 42(1-2), pages 101-106, August.
    4. Eban Goodstein, 2003. "The Death of the Pigovian Tax? Policy Implications from the Double-Dividend Debate," Land Economics, University of Wisconsin Press, vol. 79(3), pages 402-414.

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