NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Tax Distortions and Global Climate Policy

Mustafa H. Babiker, Gilbert E. Metcalf, John Reilly

NBER Working Paper No. 9136
Issued in August 2002
NBER Program(s):   ED   PE

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.

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Document Object Identifier (DOI): 10.3386/w9136

Published: Babiker, Mustafa H., Gilbert E. Metcalf and John Reilly. "Tax Distortions And Global Climate Policy," Journal of Environmental Economics and Management, 2003, v46(2,Sep), 269-287. citation courtesy of

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