Abstinence with Reputation Loss, Understating Expectations and Guilt and the Effectiveness of Emission Tax

The responsibility for, and consequences of, greenhouse gas emissions are shared by all countries, but only a few are willing to tax emissions. The paper argues that the reactions of the abstaining countries are crucial for assessing the effectiveness of the tax. The paper analyzes an interaction between a tax-collecting and investing coalition of rich countries, abstaining rich countries and poor countries. The non-coalition countries might have loss of reputation and guilt and overstate the tax’s emission-moderating effect. As long as these three types of countries react to their counterparts’ emissions, taxing emissions does not necessarily reduce the global emissions. (JEL Q52)