The international aviation and maritime sectors today enjoy relatively favorable tax treatment, as their fuels are not taxed and the sectors are not subject to any value-added tax or turnover tax. Nor are these fuel uses subject to any global measures to reduce their associated CO2 emissions,...

The authors find that incorporating tax-favored consumption in models of environmental tax swaps may overturn key results from earlier studies. In particular, a revenue-neutral pollution tax (or auctioned permits) can produce a substantial"double dividend"by reducing both pollution and the costs...