Working Paper: NBER ID: w9136
Authors: Mustafa H. Babiker; Gilbert E. Metcalf; John Reilly
Abstract: We consider the efficiency implications of policies to reduce global carbon emissions in a world with pre-existing tax distortions. We first note that the weak double-dividend, the proposition that the welfare improvement from a tax reform where environmental taxes are used to lower distorting taxes must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion, need not hold in a world with multiple distortions. We then present a large-scale computable general equilibrium model of the world economy with distortionary taxation. We use this model to evaluate a number of policies to reduce carbon emissions. We find that the weak double dividend is not obtained in a number of European countries. Results also demonstrate the point that the interplay between carbon policies and pre-existing taxes can differ markedly across countries. Thus one must be cautious in extrapolating the results from a country specific analysis to other countries.
Keywords: carbon emissions; tax distortions; climate policy; double dividend; general equilibrium model
JEL Codes: H2; Q2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| carbon emission policies (Q58) | effectiveness of carbon policies (F68) |
| tax distortions (H31) | effectiveness of carbon policies (F68) |
| environmental tax revenues (H23) | welfare improvements (I38) |
| multiple tax distortions (H31) | welfare improvements (I38) |
| selection of distortions to reduce (C52) | welfare outcomes (I38) |
| carbon policies (Q58) | interplay with preexisting taxes (H29) |
| country-specific analyses (O57) | generalization of results (C20) |