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The effect of differentiated emission taxes: does an emission tax favor industry?

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  • Shiro Takeda

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    (Department of Economics, Kanto Gakuen University)

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    Abstract

    Extending a standard 2x2 Heckscher-Ohlin model to incorporate emissions, this paper investigates the effect of differentiated emission taxes on output and emissions in a small open economy. The following results are derived. First, raising the emission tax imposed on one industry may increase the output of that industry. This result is quite surprising in the sense that such a paradoxical result can occur in a simple and standard model under fairly plausible values of parameters. By numerical examples and using a graphical method, it is also shown that the mechanism behind the result is the factor market adjustment effects which work through two different channels. Second, while strengthening emission taxes uniformly across industries always reduces the volume of emissions, strengthening emission tax unevenly may increase it.

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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 17 (2005)
    Issue (Month): 3 ()
    Pages: 1-10

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    Handle: RePEc:ebl:ecbull:eb-04q20009

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    Keywords: differentiated taxes;

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    1. Yohe, Gary W., 1979. "The backward incidence of pollution control--some comparative statics in general equilibrium," Journal of Environmental Economics and Management, Elsevier, vol. 6(3), pages 187-198, September.
    2. Jones, Ronald W. & Easton, Stephen T., 1983. "Factor intensities and factor substitution in general equilibrium," Journal of International Economics, Elsevier, Elsevier, vol. 15(1-2), pages 65-99, August.
    3. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, Elsevier, vol. 5(1), pages 15-29, February.
    4. Batra, Raveendra N. & Casas, Francisco R., 1976. "A synthesis of the Heckscher-Ohlin and the neoclassical models of international trade," Journal of International Economics, Elsevier, Elsevier, vol. 6(1), pages 21-38, February.
    5. Barrett, Scott, 1997. "The strategy of trade sanctions in international environmental agreements," Resource and Energy Economics, Elsevier, Elsevier, vol. 19(4), pages 345-361, November.
    6. Copeland, Brian R & Taylor, M Scott, 1994. "North-South Trade and the Environment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(3), pages 755-87, August.
    7. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-40, Supplemen.
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