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The Effect Of Free Trade On Pollution Policy And Welfare

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  • Gulati, Sumeet

Abstract

In this paper I consider a small economy facing accession to a trade agreement. Before accession the government has control over trade and environmental policy. After accession it retains control over environmental policy but has to allow free trade. Through the analysis I highlight an effect of free trade neglected in the literature so far. Adoption of free trade shifts the economic incidence of pollution tax from consumers onto producers of the polluting good. Under fairly plausible conditions, this change in incidence can reduce the distortion in pollution tax. Even though the choice of accession is influenced by special interest groups, I find that accession can be accompanied by an improvement in pollution policy and an increase in aggregate welfare.

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Bibliographic Info

Paper provided by University of British Columbia, Food and Resource Economics in its series Working Papers with number 15849.

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Date of creation: 2003
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Handle: RePEc:ags:ubcwps:15849

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Postal: 2053 Main Mall, Vancouver, BC V6T 1Z2
Web page: http://www.landfood.ubc.ca/fre/
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Keywords: Environmental Economics and Policy; International Relations/Trade;

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