Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/299298 
Year of Publication: 
2024
Series/Report no.: 
Discussion Papers No. 1012
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
This article explores whether altruistic preferences toward households in poor high-temperature countries stimulate global warming policies within rich low-temperature countries that avoids damage from global warming. The article analyzes optimal carbon taxes on commodities within such rich low-temperature countries when damage inflicted upon poor high-temperature countries are accompanied with foreign aid. The article contributes to the literature by identifying two cases where the second-best optimal carbon tax for such rich countries exceeds the marginal damage inflicted on poor countries. First, when rich countries place a higher altruistic welfare weight on environmental damage than on economic well-being within poor countries. Second, when foreign aid is hampered by taxes within aid-receiving countries. The article also identifies cases where the Pigouvian tax implements the social planner solution. Hence, altruistic preferences and foreign aid contributes to solve the free-rider problem associated with global warming.
Subjects: 
Optimal taxation
Foreign aid
Carbon tax
Global warming
Free-riding
JEL: 
H2
H21
H23
Q58
R48
Document Type: 
Working Paper

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