International Cooperation over Green Taxes: On the Impossibility of Achieving a Probability-One Gain

This paper concerns international coordination of environmental taxation. The main contribution of the paper is to provide a frame-work for dynamic cost benefit analysis of environmental tax reforms in a global economy with transboundary environmental problems. We show that the welfare effects of green tax reform in a multi-country economy may differ substantially from earlier results associated with representative agent models, where the transboundary aspect of the environmental problems is neglected.