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  Tax competition with asymmetric endowments in fossil resources

Franks, R. M., Lessmann, K. (2023): Tax competition with asymmetric endowments in fossil resources. - Resources Policy, 83, 103613.
https://doi.org/10.1016/j.resourpol.2023.103613

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 Creators:
Franks, R. Maximilian1, Author              
Lessmann, Kai1, Author              
Affiliations:
1Potsdam Institute for Climate Impact Research, ou_persistent13              

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 Abstract: This paper contributes to the theoretical understanding of strategic interactions of governments on global markets for fossil resources and for capital. We analyze carbon taxes and subsidies and their impact on national welfare in a two country model with markets for capital and fossil resources, and asymmetric resource endowments. Resource poor countries have an incentive to tax the use of fossil fuels to appropriate the resource rent. Resource rich countries subsidize fossil fuel use to attract production factors in order to increase national income. We have two main results. First, we demonstrate that capital mobility has a taming effect on the incentives to tax and to subsidize resources. When taxing resources not only affects the international resource market, but also the international capital market, taxation is more distortionary and is thus more costly to governments. Second, while early studies of asymmetric tax competition found that small countries in terms of population are winners of tax competition, we show that with asymmetric resource endowments but a symmetric population size, there are no winners. Then, the Nash equilibrium of carbon tax competition is the least desirable outcome in terms of social welfare. A game structure similar to a Prisoner’s Dilemma emerges and cooperation makes Pareto improvements over the Nash equilibrium possible.

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Language(s): eng - English
 Dates: 2023-04-182023-05-202023-06-01
 Publication Status: Finally published
 Pages: 24
 Publishing info: -
 Table of Contents: -
 Rev. Type: Peer
 Identifiers: PIKDOMAIN: RD3 - Transformation Pathways
Organisational keyword: RD3 - Transformation Pathways
Model / method: PRIDE
Regional keyword: Global
Organisational keyword: FutureLab - Public Economics and Climate Finance
Research topic keyword: Carbon Pricing
Research topic keyword: Climate Policy
Research topic keyword: Economics
Research topic keyword: Energy
DOI: 10.1016/j.resourpol.2023.103613
MDB-ID: yes - 3433
 Degree: -

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Title: Resources Policy
Source Genre: Journal, SSCI, Scopus
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Pages: - Volume / Issue: 83 Sequence Number: 103613 Start / End Page: - Identifier: CoNE: https://publications.pik-potsdam.de/cone/journals/resource/1873-7641
Publisher: Elsevier