On the Geographic Implications of Carbon Taxes

• Authors: Bruno Conte.
• BSE Working Paper: 112332 | October 24
• Keywords: climate change , economic geography , carbon taxes
• JEL codes: R12, Q54, H23
• climate change
• economic geography
• carbon taxes

Using a multisector dynamic spatial integrated assessment model (S-IAM), we argue that a carbon tax introduced by the European Union (EU) and rebated locally can, if not too large, increase the size of Europe’s economy by concentrating economic activity in its high-productivity non-agricultural core and by incentivizing immigration to the EU. The resulting change in the spatial distribution of economic activity improves global efficiency and welfare. A carbon tax introduced by the US generates similar effects. This stands in sharp contrast with standard models that ignore trade and migration in a world shaped by economic geography forces.