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Financing Public Expenditure via Emissions Taxation under International Emissions Trading: Is There Any Scope for Emission Tax Harmonization?

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  • Alessio D’Amato

    () (University of Rome “Tor Vergata”)

  • Amanda Spisto

    () (University of Rome “Tor Vergata”)

Abstract

We address the issue of emission tax harmonization in a model featuring two representative firms located in two countries. Firms are subject to an international emissions trading system and to domestic emissions taxation; the latter generates public revenue but also implies implementation costs. Decentralized tax setting causes a spillover across countries via the permits price. Nonetheless, harmonization might imply a lower aggregate social welfare. This happens when uniform taxation prevents the exploitation of significant differences across countries in terms of costs and benefits of taxation. Finally, we identify cases where harmonization implies larger aggregate social welfare but lacks unanimous consent.

Suggested Citation

  • Alessio D’Amato & Amanda Spisto, 2009. "Financing Public Expenditure via Emissions Taxation under International Emissions Trading: Is There Any Scope for Emission Tax Harmonization?," Rivista di Politica Economica, SIPI Spa, vol. 99(3), pages 247-272, JULY-SEPT.
  • Handle: RePEc:rpo:ripoec:v:99:y:2009:i:3:p:247-272
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    Keywords

    environmental tax harmonization; international emissions trading; transboundary pollution;

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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