Policies of lowering carbon demand may aggravate rather than alleviate climate change. This possibility is called the 'green paradox' (Sinn 2008). In a twoperiod three-country general equilibrium model with profit-maximizing suppliers of non-renewable fossil fuel we analyze carbon leakage and the green paradox.One country supplies fossil fuel and the other two consume it. Only one of the latter enforces (and tightens) an emissions cap either in the first or in the second period. The extent of carbon leakage turns out to depend on the interaction of various parameters and elasticities. All determinants of carbon leakage resulting from tightening the first-period cap work in opposite direction when the secondperiod cap is tightened. No unambiguous support is found for the proposition that tightening the second-period cap necessarily leads to the green paradox.JEL classification: H22, Q32, Q54

No abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We analyse tax competition with corporate income taxes in a common market where tax revenues are allocated according to an apportionment formula. Generally, tax competition is sharper (i.e., equilibrium tax rates are lower) the more tax-elastic is the apportionment formula. This depends on the properties of production technologies. In particular: (i) With fixed labour input, tax competition is sharpest if apportionment is based on property-shares, followed by the sales-and payroll-shares. (ii) If capital and labour are endogenous and technologies are Cobb-Douglas, tax competition under the property-and the payroll-share rule is sharper than under the sales-share formula. Factor elasticities determine whether payroll-or property-share apportionment generates sharper tax competition. Terms of use: Documents in EconStor mayJEL Code: D81, D21.