THE CARBON TAX GAME - DIFFERENTIAL TAX RECYCLING IN A 2-REGION GENERAL EQUILIBRIUM-MODEL OF THE EUROPEAN-COMMUNITY

This paper examines how the impact of an EC-wide carbon/energy tax on the economic performance of one country is influenced by the way in wh ich the tax is recycled in that particular country and in other countr ies. The paper utilizes a computable general equilibrium model of (Wes t)Germany and the rest of the EC to analyze any pair-wise combination of four different ways of revenue recycling. A key finding is that the exports of Germany are strongly influenced by the recycling behavior of the rest of EC, and vice versa. These impacts carry over to the dif ferent sectors of the economy, depending on their exposure to internat ional competition.