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Forming a Majority Coalition for Carbon Taxes Under a State-Contingent Updating Rule

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  • Ross McKitrick

    (Department of Economics and Finance, University of Guelph)

  • Jamie Lee

    (Department of Economics and Finance, University of Guelph)

Abstract

Uncertainty and political polarization over global warming make it difficult to achieve a stable majority coalition supporting carbon taxes, especially since expectations about the future optimal values sharply diverge. We present an alternative approach in which the tax path is not announced in advance but is set to track observed future temperatures. Agents thus form expectations which imply the tax path will be correlated with their preferred price trajectory. Whereas greater variance in beliefs about future global warming undermines support for a compromise policy, the state-contingent proposal attracts majority support irrespective of the divergence of views, and even has robustness properties to strategic voting by dishonest agents.

Suggested Citation

  • Ross McKitrick & Jamie Lee, 2016. "Forming a Majority Coalition for Carbon Taxes Under a State-Contingent Updating Rule," Working Papers 1610, University of Guelph, Department of Economics and Finance.
    • Handle: RePEc:gue:guelph:2016-10
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    References listed on IDEAS

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    More about this item

    Keywords

    Carbon tax; State-contingent model; Majority voting; Climate change; Uncertainty;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • 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
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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