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

27 Pages Posted: 18 Jan 2013

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: December 2012

Abstract

This paper explores the role of trade instruments in globally efficient climate policies, focusing on the central issue of whether some form of 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, more particularly, 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 discusions. It also stresses - a point that has been overlooked in the policy debate - that the efficiency case for BTA depends critically on whether climate policies are pursued by carbon taxation or by cap-and-trade.

Keywords: Climate policy, Trade policy, Tariff structures, Taxation, Economic models, Environmental taxation, cap-and-trade, international trade, Pareto efficiency, border tax adjustments, carbon taxes, border tax, trade policies, international trade, trade taxes, world prices, tariff rates, tariff structures, tariff structure, global welfare, terms of trade, environmental taxation, tariff revenue, equilibrium model, import tariff, tax revenues, tariff distortions, global production, partial equilibrium, tax structures, market equilibrium, tax law review, trade reform, optimal tax, world markets, trade effect, consumption taxes, economic cooperation, pollution taxes, net exports, domestic demand, trad

JEL Classification: F18, H20

Suggested Citation

Keen, Michael and Kotsogiannis, Christos, Coordinating Climate and Trade Policies: Pareto Efficiency and the Role of Border Tax Adjustments (December 2012). IMF Working Paper No. 12/289. Available at SSRN: https://ssrn.com/abstract=2202640

Michael Keen (Contact Author)

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

University of Exeter ( email )

Exeter EX4 4QX, Devon
United Kingdom

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