The social cost of carbon and inequality: When local redistribution shapes global carbon prices

The social cost of carbon is a central metric for optimal prices. Previous literature shows that inequality significantly influences the carbon, but mostly omits heterogeneity below national level. We present an taxation model accounts between and within countries. find climate distributional policy can generally not be separated. If only one country does compensate low-income households disproportionate damages, tends to increase globally. Optimal prices remain roughly unchanged if redistribution leaves unaffected by change utility approximately logarithmic in consumption.