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On the Geographic Implications of Carbon Taxes

Author

Listed:
  • Bruno Conte

    (UPF - Universitat Pompeu Fabra [Barcelona])

  • Klaus Desmet

    (SMU - Southern Methodist University [Dallas, TX, USA])

  • Esteban Rossi-Hansberg

    (University of Chicago)

Abstract

A unilateral carbon tax trades off the distortionary costs of taxation and the future gains from slowing down global warming. Because the cost is local and immediate, whereas the benefit is global and delayed, this tradeoff tends to be unfavorable to unilateral carbon taxes. We show that this logic breaks down in a world with trade and migration where economic geography is shaped by agglomeration economies and congestion forces. Using a multisector dynamic spatial integrated assessment model (S-IAM), this paper predicts that a carbon tax introduced by the European Union (EU) and rebated locally can, if not too large, increase the size of Europe's economy by concentrating economic activity in its high-productivity non-agricultural core and by incentivizing immigration to the EU. The resulting change in the spatial distribution of economic activity improves global efficiency and welfare. A unilateral carbon tax with local rebating introduced by the US generates similar global welfare gains. Other forms of rebating can dilute or revert this positive effect.

Suggested Citation

  • Bruno Conte & Klaus Desmet & Esteban Rossi-Hansberg, 2022. "On the Geographic Implications of Carbon Taxes," Working Papers halshs-04960389, HAL.
    • Handle: RePEc:hal:wpaper:halshs-04960389
    DOI: 10.3386/w30678
    as

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    Cited by:

    1. is not listed on IDEAS
    2. Bruno Conte, 2022. "Climate Change and Migration: The Case of Africa," CESifo Working Paper Series 9948, CESifo.
    3. Adrien Bilal & James H. Stock, 2025. "A Guide to Macroeconomics and Climate Change," NBER Working Papers 33567, National Bureau of Economic Research, Inc.
    4. Berlin, Mitchell & Byun, Sung Je & D'Erasmo, Pablo & Yu, Edison, 2024. "Measuring climate transition risk at the regional level with an application to community banks," European Economic Review, Elsevier, vol. 170(C).
    5. Caggese, Andrea & Chiavari, Andrea & Goraya, Sampreet & Villegas‑Sanchez, Carolina, 2025. "Climate change, firms and aggregate productivity," Research Bulletin, European Central Bank, vol. 132.
    6. Bijnens, Gert & Anyfantaki, Sofia & Colciago, Andrea & De Mulder, Jan & Falck, Elisabeth & Labhard, Vincent & Lopez-Garcia, Paloma & Meriküll, Jaanika & Parker, Miles & Röhe, Oke & Schroth, Joachim & , 2024. "The impact of climate change and policies on productivity," Occasional Paper Series 340, European Central Bank.
    7. Gustav Martinsson & László Sajtos & Per Strömberg & Christian Thomann, 2024. "The Effect of Carbon Pricing on Firm Emissions: Evidence from the Swedish CO2 Tax," The Review of Financial Studies, Society for Financial Studies, vol. 37(6), pages 1848-1886.
    8. Juan S. Mora-Sanguinetti & Andres Atienza-Maeso, 2023. ""Green regulation": a quantification of regulations related to renewable energies and climate change in Spain and France," Working papers 937, Banque de France.

    More about this item

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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