When redistribution warrants a single price for an externality, and what to do without it — Ulrike Kornek

Speaker

Ulrike Kornek (Kiel University (CAU); Mercator Research Institute on Global Commons and Climate Change (MCC))

Abstract

Carbon pricing has reached center-stage in climate policy. While a global uniform price seems warranted, today’s reality reveals fragmented pricing, both concerning sectoral coverage and the level of the price in different jurisdictions. We shed light on the usefulness of differentiated pricing in a standard optimal taxation framework in which consumers' preferences are separable in consumption and labor and identical over consumption, but are affected by consumption externalities. For every non-linear, income-dependent pricing of goods there is a linear pricing scheme, combined with an adjusted income tax schedule, that leaves all consumers equally well-off and weakly increases the government's budget. The result depends on whether a linear pricing scheme exists that keeps the aggregate amount of consumption at its initial level observed under non-linear pricing. We provide sufficient conditions for the assumption to hold. If adjusting the income tax rate is not available, personalized prices for an externality can enhance social welfare if they are redistributive, i.e. favor consumers with a larger marginal social value of income. We discuss the implications of our findings for national and international carbon pricing. 

Authors

Ulrike Kornek (Kiel University (CAU); Mercator Research Institute on Global Commons and Climate Change (MCC)) and Marc Fleurbaey (CNRS and Paris School of Economics)

Room

Virtuall via Gotomeeting
If interested, please send an Email to frank.bickenbach@ifw-kiel.de to receive a Gotomeeting-Link to the seminar.