A sequential game analysis on carbon tax policy choices in open economies: From the perspective of carbon emission responsibilities

Abstract

Carbon tax policy has mainly focused on carbon emissions generated from production following producer responsibility, but recent studies from consumer responsibility suggest that consumption is also an important source of carbon emission, and different countries are successively putting production-based or consumption-based carbon tax policy into practice. This paper aims to fill a gap in the academic literature by providing carbon tax policy choices for different countries when they can choose production-based or consumption-based carbon tax policy. The study establishes four sequential game models where a foreign country with more advanced environmental R&D technology chooses a carbon tax policy prior to a home country with lower production cost, and compares welfares of these models. It’s shown that the home country may choose production-based or consumption-based carbon tax policy given the foreign country’s policy choice and the foreign country may also choose production-based or consumption-based carbon tax policy no matter what the home country is expected to choose. It will contribute to the theoretical analysis on carbon tax policy choices and provide a reference for the future improvement of carbon tax policy in the globe.