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Why Finance Ministers Favor Carbon Taxes, Even If They Do Not Take Climate Change into Account
- Source :
- Environmental and Resource Economics. 68:445-472
- Publication Year :
- 2015
- Publisher :
- Springer Science and Business Media LLC, 2015.
-
Abstract
- Fiscal considerations may shift governmental priorities away from environmental concerns: Finance ministers face strong demand for public expenditures such as infrastructure investments but they are constrained by international tax competition. We develop a multi-region model of tax competition and resource extraction to assess the fiscal incentive of imposing a tax on carbon rather than on capital. We explicitly model international capital and resource markets, as well as intertemporal capital accumulation and resource extraction. While fossil resources give rise to scarcity rents, capital does not. With carbon taxes the rents can be captured and invested in infrastructure, which leads to higher welfare than under capital taxation. This result holds even without modeling environmental damages. It is robust under a variation of the behavioral assumptions of resource importers to coordinate their actions, and a resource exporter's ability to counteract carbon policies. Further, no green paradox occurs - instead, the carbon tax constitutes a viable green policy, since it postpones extraction and reduces cumulative emissions.
- Subjects :
- Finance
Economics and Econometrics
Double taxation
Carbon tax
Tax competition
business.industry
020209 energy
media_common.quotation_subject
jel:H73
jel:F21
jel:H30
02 engineering and technology
Management, Monitoring, Policy and Law
Tax reform
jel:H21
Scarcity
Capital accumulation
Capital (economics)
0202 electrical engineering, electronic engineering, information engineering
Economics
business
Carbon Pricing, Green Paradox, Infrastructure, Optimal Taxation, Strategic Instrument Choice, Supply-Side Dynamics, Tax Competition
Green paradox
jel:Q38
media_common
Subjects
Details
- ISSN :
- 15731502 and 09246460
- Volume :
- 68
- Database :
- OpenAIRE
- Journal :
- Environmental and Resource Economics
- Accession number :
- edsair.doi.dedup.....710d735bbf8613c4871c7d61fe8292cf