Biofuel subsidies and international trade
AbstractThis paper explores optimal biofuel subsidies in a general equilibrium trade model. The focus is on the production of biofuels such as corn-based ethanol, which diverts corn from use as food. In the small-country case, when the tax on crude is not available as a policy option, a second-best biofuel subsidy may or may not be positive. In the large-country case, the twin objectives of pollution reduction and terms-of-trade improvement justify a combination of crude tax and biofuel subsidy for the food exporter. Finally, we show that when both nations engage in biofuel policies, the terms-of-trade effects encourage the Nash equilibrium subsidy to be positive (negative) for the food exporting (importing) nation.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 41491.
Date of creation: Oct 2010
Date of revision: 21 Sep 2012
Biofuel Subsidy; Pigouvian Tax; Pollution Externality;
Other versions of this item:
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- F1 - International Economics - - Trade
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Does it make sense to subsidize biofuels?
by Economic Logician in Economic Logic on 2011-06-07 14:52:00
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