Discussion Paper Details

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Title: Can a Small Nation Gain from Introducing a Carbon Tax Early?

Author(s): Diderik Lund

Publication Date: December 1994

Keyword(s): Carbon Tax, Global Warming and Research and Development

Programme Area(s): International Trade and Regional Economics

Abstract: 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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Bibliographic Reference

Lund, D. 1994. 'Can a Small Nation Gain from Introducing a Carbon Tax Early?'. London, Centre for Economic Policy Research.