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 carbon dioxide (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 the 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 percent. 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 InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-12-19.
Date of creation: 23 Aug 2012
Date of revision:
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?," Energy Economics, Elsevier, vol. 34(S2), pages S218-S227.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-22 (All new papers)
- NEP-ENE-2012-09-22 (Energy Economics)
- NEP-ENV-2012-09-22 (Environmental Economics)
- NEP-PBE-2012-09-22 (Public Economics)
- NEP-RES-2012-09-22 (Resource Economics)
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