The Strategic Implications of Setting Border Tax Adjustments
نویسندگان
چکیده
In order not to see their climate mitigation efforts be in vain by the unlimited growth in China and India, the developed world has started to consider imposing border tax adjustments on imports from these fast developing countries. This paper puts this problem into a game-theoretic perspective. It sets up the problem as a game between the developed world deciding on three regimes of border tax adjustments on the one hand and China and India deciding on setting an emissions reduction target on the other hand. The rest of the world, mainly the underdeveloped world, is an outsider to this game. It turns out that one of the border tax adjustment regimes is optimal, i.e. the one that is closest to an optimal taxation rule, where China and India will choose a positive reduction target for their emissions. The chosen border tax adjustment is however the worst case for the environment. JEL-classification: C68, C72, D58, D62, F18, H23
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