Discussion paper

DP1064 Can a Small Nation Gain from Introducing a Carbon Tax Early?

Carbon dioxide emissions may cause global warming. But own emissions have negligible effects for a small nation, which may thus regard carbon taxes as distortionary. Such taxes may have other effects, however. When research and development (R&D) has positive external effects, carbon taxes may correct for some of these, by giving incentives for R&D in particular directions. This may be beneficial when the nation faces a binding international agreement on reducing emissions in a future period. This effect is analysed, both for a case with a carbon tax alone, and for two different cases with R&D subsidies as well. Finally, a different international agreement is considered, under which the tax revenue is collected domestically.

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Citation

Lund, D (1994), ‘DP1064 Can a Small Nation Gain from Introducing a Carbon Tax Early?‘, CEPR Discussion Paper No. 1064. CEPR Press, Paris & London. https://cepr.org/publications/dp1064