Equal tax and equal compensation: A fair and efficient way to save climate

Abstract

We show that “equal tax and equal compensation” (T&C) is fair as justified by the two fairness principles. It differs from any Pigouvian tax with fixed lump-sum payments and can motivate every country to maximize world welfare. It benefits countries with current per capita emissions lower than the world average and would benefit every country when compared with a fair benchmark where emissions are duly penalized and compensated. Subsidizing emission reduction by poll tax is Pareto efficient and Pareto improving over status quo, but unfair. An imperfect T&C with a sub-optimal tax or pyramid taxes can still benefit the world.