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Abstract

This paper assesses regional differences in the net welfare cost of using carbon tax Policies to reduce anticipated climate change. If carbon tax revenues finance reductions in existing taxes, the 'net' welfare cost of the carbon tax may be significantly lowered in light of the indirect benefits of lowering the welfare cost of existing taxes. Indeed, our analysis indicates that a revenue-neutral carbon tax may have a net positive welfare effect based on these public finance considerations alone (ignoring anticipated climate change damages). Moreover, given regional differences in energy resources, efficiency, economic structure, and the efficiency of existing taxes, the potential gains for developing countries appear higher than for developed countries as a percent of GDP. While substantial differences remain in countries' institutional capacity to administer such taxation, these findings run counter to the common assumption that climate change policy would impose the largest burden on the poorest countries.

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