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Unilateral climate policy and optimal containment in an open economy

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  • Csordás, Stefan
  • Krysiak, Frank C.

Abstract

In the absence of a broad international agreement, national climate policies NEWLINE are less efficient, due to carbon leakage, and more costly, due to causing NEWLINE unemployment and a loss of competitiveness on international markets. As, NEWLINE in many countries, a substantial fraction of emissions results from the production NEWLINE of intermediate goods, such as electricity or transportation services, NEWLINE we investigate whether the above negative side-effects can be addressed by NEWLINE a policy mix that (partially) contains the effects of climate policy to the intermediate NEWLINE goods sector. We use a four-sector general equilibrium model to NEWLINE study a policy mix that consists of taxing emissions and subsidizing the intermediate NEWLINE good. We show that such containment is a second-best approach NEWLINE to combat carbon leakage and to maintain a favorable international market NEWLINE position. Also, it can help to reduce climate-policy-induced unemployment.

Suggested Citation

  • Csordás, Stefan & Krysiak, Frank C., 2009. "Unilateral climate policy and optimal containment in an open economy," Working papers 2009/02, Faculty of Business and Economics - University of Basel.
  • Handle: RePEc:bsl:wpaper:2009/02
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    References listed on IDEAS

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    1. Krishna, Pravin & Panagariya, Arvind, 2000. "A unification of second best results in international trade," Journal of International Economics, Elsevier, vol. 52(2), pages 235-257, December.
    2. Finus, Michael, 2008. "Game Theoretic Research on the Design of International Environmental Agreements: Insights, Critical Remarks, and Future Challenges," International Review of Environmental and Resource Economics, now publishers, vol. 2(1), pages 29-67, June.
    3. R. G. Lipsey & Kelvin Lancaster, 1956. "The General Theory of Second Best," Review of Economic Studies, Oxford University Press, vol. 24(1), pages 11-32.
    4. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September.
    5. Mayeres, Inge & Proost, Stef, 2001. "Marginal tax reform, externalities and income distribution," Journal of Public Economics, Elsevier, vol. 79(2), pages 343-363, February.
    6. Golombek, Rolf & Hagem, Cathrine & Hoel, Michael, 1995. "Efficient incomplete international climate agreements," Resource and Energy Economics, Elsevier, vol. 17(1), pages 25-46, May.
    7. Bovenberg, A.L. & Goulder, L.H., 1996. "Optimal environmental taxation in the presence of other taxes : General equilibrium analyses," Other publications TiSEM 5d4b7517-c5c8-4ef6-ab76-3, Tilburg University, School of Economics and Management.
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