Differentiated carbon taxation

In the face of pollution externalities, there is no doubt that carbon taxes are the best solution. What is more tricky is to establish the level of those taxes. A particular aspect of this is whether carbon taxes need to be differentiated across countries. For example, should it be the same in developed and developing economies? For context, see the current riots and strikes in Nigeria after the removal of fuel subsidies.

Antoine d’Autumne, Katheline Schubert, Cees Withagen take on the question at an international level and argue that that optimal tax design would call for differentiated taxes with lump-sum transfers across countries. While the tax has a world-wide component, the country-specific one stems from local externalities, of course, and from the distortions from cost of public funds. If lump-sum transfers are not possible, international inequities would also have to be captured by differentiated taxes. So, yes, rich countries do need to tax carbon more, even probably even much more than poor ones.