Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/113931
Authors: 
Franks, Max
Edenhofer, Ottmar
Lessmann, Kai
Year of Publication: 
2015
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 37.2015
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: 
Carbon Pricing
Green Paradox
Infrastructure
Optimal Taxation
Strategic Instrument Choice
Supply-Side Dynamics
Tax Competition
JEL: 
F21
H21
H30
H73
Q38
Document Type: 
Working Paper

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