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On the strategic use of border tax adjustments as a second-best climate policy measure

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  • Mason, Charles F.
  • Barbier, Edward B.
  • Umanskaya, Victoria I.

Abstract

We investigate the interaction between a developed country that imports a carbon-intensive product, such as electricity, and a transitioning economy that exports the product. Production of the good generates a transboundary externality related to climate change; if this externality is priced improperly, the application of a feed-in tariff or border tax adjustment can provide an indirect policy instrument. We analyze the application of such a measure in a stark model where the importing country cares about climate-related damages while the exporting country does not; this can be viewed as reflecting a scenario where the (developed) importing country is more concerned about climate change than is the (transitioning) exporting economy. Because climate change will occur over a long time frame, the problem is dynamic. In this modeling context, we describe the manner in which the (second-best) tariff-cum-border tax adjustment relates to the carbon stock.

Suggested Citation

  • Mason, Charles F. & Barbier, Edward B. & Umanskaya, Victoria I., 2015. "On the strategic use of border tax adjustments as a second-best climate policy measure," Environment and Development Economics, Cambridge University Press, vol. 20(4), pages 539-560, August.
  • Handle: RePEc:cup:endeec:v:20:y:2015:i:04:p:539-560_00
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    Cited by:

    1. Charles F. Mason, 2017. "Transboundary Externalities and Reciprocal Taxes: A Differential Game Approach," CESifo Working Paper Series 6561, CESifo Group Munich.

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