Border Carbon Adjustments (BCAs) may play an important role in lowering the economic costs of greenhouse gas mitigation and in overcoming political-economy constraints on the use of carbon taxes or equivalent measures. A carbon tax plus a full BCA could deal with the competitiveness challenges arising from carbon taxes by using the WTO's National Treatment principle to apply equal levies on domestic production and on imports, and by symmetrically rebating the carbon tax on exports in the manner of a value-added tax (VAT) export rebate. This approach would shift the base for carbon taxation from production to demand and potentially achieve substantial reductions in the cost of cutting emissions. It would avoid the massive measurement and compliance problems associated with BCAs based on foreign emission intensities. By contrast, import-only BCAs distort prices of importables relative to exportables; create divisive trade conflicts and deterioration in the terms of trade for developing countries; and likely require development of complex sets of import preferences.

Developing countries often rely on consumption taxes, because these are broad, easy to administer, and harder to evade. However, the taxation system becomes inherently regressive. To counter this problem of the regressive nature of consumption taxes, there is a temptation among policymakers to address equity concerns through a multiplicity of rates, making the consumption tax system complex. Here, complexity is considered the by-product, or companion, to pursuing goals of equity. Complex tax systems, however, pose a different problem relating to equity. Assuming a minimum fixed cost of compliance imposed by a complex tax system, smaller firms and individuals face a much higher cost of compliance relative to larger firms and richer individuals. Oligarchic sectors dominated by a few large firms also find it easier to organize and lobby to get favorable rates compared to competitive sectors with small firms. Though complexity is considered a by-product of several equity-enhancing measures, the Indian experience with its Goods and Services Tax reform serves demonstrates the opposite, that there is a trade-off between equity and complexity.

Consumption taxes are a policy tool that shape the income distribution and potentially thwart the redistributive goals of social policy. Different household types might be affected differently due to diverging income positions and consumption levels. This study examines the change in poverty across household types when accounting for consumption tax payments. To this end, the study draws on harmonised data from eleven OECD countries in the Luxembourg Income Study (LIS). Implicit indirect tax rates are estimated from national accounts and poverty rates before and after subtracting consumption taxes are investigated. The results indicate significant variation across household types. In most countries, large family and single parent households experience the highest poverty increase. Ultimately, the increase in poverty across countries is positively associated with the consumption tax level.