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Trade Liberalization and Environmental Taxation in Federal Systems

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  • Per G. Fredriksson
  • Xenia Matschke

Abstract

The literature on trade liberalization and environment has not considered federal structures. This paper shows how the design of environmental policy in a federal system has implications for the effects of trade reform. Trade liberalization leads to a decline in pollution taxes regardless of whether pollution taxes are set at the federal (centralized) or local (decentralized) level, and it increases social welfare. The effect under a decentralized system is smaller than if these taxes are set by the federal government, and pollution emissions therefore decline in this case. Moreover, majority bias interacts with trade liberalization if federal taxes are used.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2014/wp-cesifo-2014-03/cesifo1_wp4717.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4717.

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Date of creation: 2014
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Handle: RePEc:ces:ceswps:_4717

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Keywords: trade and environment; environmental policy; trade liberalization; environmental federalism; political economy; majority bias; social welfare;

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  1. William Jaeger, 2011. "The Welfare Effects of Environmental Taxation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(1), pages 101-119, May.
  2. Cole, Matthew A. & Elliott, Robert J. R., 2003. "Determining the trade-environment composition effect: the role of capital, labor and environmental regulations," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 363-383, November.
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  7. Per G. Fredriksson & Xenia Matschke & Jenny Minier, 2008. "Environmental Policy in Majoritarian Systems," Working papers 2008-01, University of Connecticut, Department of Economics, revised Sep 2009.
  8. McAusland, Carol & Millimet, Daniel L., 2013. "Do national borders matter? Intranational trade, international trade, and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 65(3), pages 411-437.
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  19. Damania, Richard & Fredriksson, Per G. & List, John A., 2003. "Trade liberalization, corruption, and environmental policy formation: theory and evidence," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 490-512, November.
  20. Eerola, Essi, 2006. "International trade agreements, environmental policy, and relocation of production," Resource and Energy Economics, Elsevier, vol. 28(4), pages 333-350, November.
  21. Schleich, Joachim, 1999. "Environmental quality with endogenous domestic and trade policies1," European Journal of Political Economy, Elsevier, vol. 15(1), pages 53-71, March.
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  23. Bommer, Rolf & Schulze, Gunther G., 1999. "Environmental improvement with trade liberalization," European Journal of Political Economy, Elsevier, vol. 15(4), pages 639-661, November.
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