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Climate Change, Strict Pareto Improvements in Welfare and Multilateral Income Transfers

Author

Listed:
  • Christos Kotsogiannis

    (Department of Economics, University of Exeter, Exeter, UK)

  • Alan Woodland

    (School of Economics, UNSW Business School, UNSW, Australia)

Abstract

This paper explores the role of multilateral transfers in achieving strict Pareto improvements in welfare, focusing on identifying conditions under which their use is warranted when carbon prices differ internationally and there are impediments to international trade. Using a general equilibrium model of international trade with global emission externalities, it is shown that strict Pareto improvements in welfare may arise from multilateral income transfers when either trade or carbon taxes are constrained away from their Pareto optimal levels. The purpose of transfers is then to account for the impact on emissions of the trade distortions and inappropriate carbon pricing. Such transfers exist if and only if a generalized normality condition is violated. A numerical example illustrates the transfer mechanism.

Suggested Citation

  • Christos Kotsogiannis & Alan Woodland, 2018. "Climate Change, Strict Pareto Improvements in Welfare and Multilateral Income Transfers," Discussion Papers 2018-04, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2018-04
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2018-04.pdf
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    References listed on IDEAS

    as
    1. J. Neary, 2006. "International Trade and the Environment: Theoretical and Policy Linkages," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 33(1), pages 95-118, January.
    2. Keen, Michael & Kotsogiannis, Christos, 2014. "Coordinating climate and trade policies: Pareto efficiency and the role of border tax adjustments," Journal of International Economics, Elsevier, vol. 94(1), pages 119-128.
    3. Arja H. Turunen‐Red & Alan D. Woodland, 2004. "Multilateral Reforms of Trade and Environmental Policy," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 321-336, August.
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    5. Wallace E. Oates, 2004. "Environmental Policy and Fiscal Federalism," Books, Edward Elgar Publishing, number 3284.
    6. James R. MARKUSEN, 2021. "International Externalities And Optimal Tax Structures," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 16, pages 341-355, World Scientific Publishing Co. Pte. Ltd..
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    More about this item

    Keywords

    Global emissions; environmental externalities; multilateral income transfers; Pareto-improving reforms;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • F18 - International Economics - - Trade - - - Trade and Environment

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