therefore, for world growth and development. Since domestic energy prices in developing
countries are often below world prices, he argues that a carbon tax would help improve
efficiency and perhaps be more revenue productive than conventional domestic revenue
sources. 15
However, Gupta and Mahler (1994) found that domestic petroleum prices and tax rates
vary significantly among countries across the world. They have also varied over time. Cross-
country variations were also reported by Sterner et al (1992) for the OECD. In this scenario,
an argument in favour of increasing domestic petroleum taxes in countries where prices are
low may hold more water than the argument in favour of a global tax. The latter argument
is better couched, therefore, in terms of global environmental needs than on the basis of low
prices. Nevertheless, this does pose a moral hazard problem for a global carbon tax since
countries which already have high tax rates may, to an extent justifiably, feel that the global
tax be designed in such a way that they do not suffer inequities because of the tax. 16
That is not impossible, however. The design could include the stipulation of a
minimum global tax on countries. After paying the minimum to the global regulatory body,
any country could be free to levy any tax rate for domestic purposes. If the minimum is set
at an appropriately high level, the existing high tax countries could be expected to reduce their
domestic rates. Those countries that have been taxing below the minimum, would have to
increase their overall tax rates significantly, first, to meet the global payment and, second, to
meet their own revenue needs. 17
He mentions the income tax, value added tax and customs duties. He even claims
that, on balance, the carbon tax, compared to the others, would also have the least
harmful effects on inflation and equity. Some of these claims may or may not be
provable—but this is just to indicate that, among the analysts, there are indeed some
extremely strong proponents of the tax as a global tax.
This comments should alert the reader to the many practical issues that must be faced
in designing the tax on a global scale.
If their domestic revenue needs do not change, then they would simply need to
increase their tax effort by the global minimum tax.
17