Tax Distortions and Global Climate Policy

34 Pages Posted: 30 Aug 2002

See all articles by Mustafa Hussein Babiker

Mustafa Hussein Babiker

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Gilbert E. Metcalf

Tufts University - Department of Economics; National Bureau of Economic Research (NBER)

John M. Reilly

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Date Written: August 2002

Abstract

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.

Suggested Citation

Babiker, Mustafa Hussein and Metcalf, Gilbert E. and Reilly, John M., Tax Distortions and Global Climate Policy (August 2002). NBER Working Paper No. w9136. Available at SSRN: https://ssrn.com/abstract=327162

Mustafa Hussein Babiker

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

E19-429
77 Massachusetts Ave
Cambridge, MA 02139
United States

Gilbert E. Metcalf (Contact Author)

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-3685 (Phone)
617-627-3917 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John M. Reilly

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

E19-429
77 Massachusetts Ave
Cambridge, MA 02139
United States
617-253-8040 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
46
Abstract Views
1,704
PlumX Metrics