Monday, June 06, 2011

Carbon Tax Would Weaken Australia

Australian Prime Minister Julia Gillard faces a potential revolt in her party on the issue of a carbon tax.

This is very understandable, because Australia as a large exporter of coal has more than most other countries to loose from a carbon tax.

In countries that are net importers of carbon based energy, the efficiency loss from a carbon tax is at least in part cancelled out by an improvement in terms of trade, as the tax reduces the price excluding taxes. But in Australia and other net exporters, the terms of trade effect reinforces the efficency loss and thus aggravates the economic losses.


Blogger Barking Cat said...

I don't understand that, can you explain it more simply to a non-economist like me?

11:18 PM  
Blogger stefankarlsson said...

Simpler in what way? A tax reduces the price excluding the tax as it reduces demand. Australia benefits from high prices of coal, thus reduced coal prices is bad from Australia, while on the other hand it is good for coal importers like China.

4:05 PM  

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