Coordinating Climate and Trade Policies: Pareto Efficiency and the Role of Border Tax Adjustments

25 Pages Posted: 29 Jun 2011

See all articles by Michael Keen

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS)

Christos Kotsogiannis

University of Exeter

Multiple version iconThere are 2 versions of this paper

Date Written: June 28, 2011

Abstract

This paper explores the role of trade instruments in globally efficient climate policies, focusing on the central issue of whether border tax adjustment (BTA) is warranted when carbon prices differ internationally. It shows that tariff policy has a role in easing cross-country distributional concerns that can make non-uniform carbon pricing efficient, and that Pareto-efficiency requires a form of BTA when carbon taxes in some countries are constrained, a special case being identified in which this has the simple structure envisaged in practical policy discussion. It also stresses - a point that has been overlooked in the policy debate - that the case for BTA depends critically on whether climate policies are pursued by carbon taxation or by cap-and-trade.

Keywords: environmental taxation, cap-and-trade, international trade, Pareto efficiency, border tax adjustments

JEL Classification: H200, F180

Suggested Citation

Keen, Michael and Kotsogiannis, Christos, Coordinating Climate and Trade Policies: Pareto Efficiency and the Role of Border Tax Adjustments (June 28, 2011). CESifo Working Paper Series No. 3494. Available at SSRN: https://ssrn.com/abstract=1873886

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Christos Kotsogiannis (Contact Author)

University of Exeter ( email )

Exeter EX4 4QX, Devon
United Kingdom

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