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Environmental taxation and structural change in an open economy : a CGE analysis with imperfect competition and free entry

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Author Info
Böhringer, Christoph
Welsch, Heinz
Löschel, Andreas

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Abstract

The economic effects of environmental taxes depend on the market structure. Under imperfect competition with free entry and exit, environmental taxes have an impact on economies of scale by changing the number and size of firms. Whether economies of scale rise or fall in a particular industry depends on induced changes in the price elasticity of demand. Because export demand is more price elastic than domestic demand, the overall price elasticity rises (falls) as the industry gains (loses) in comparative advantage. We use a computable general equilibrium model for Germany to examine the effects of a unilaterally introduced carbon tax under both perfect and imperfect competition. Our key finding is that induced structural change in favor of the less energy intensive, more labor intensive industries is more pronounced under imperfect competition than under perfect competition. At the macroeconomic level, the total costs of environmental regulation under imperfect competition can be higher or lower than those under perfect competition depending on whether aggregate gains or losses in economies of scale across imperfectly competitive sectors prevail. --

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Publisher Info
Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 01-07.

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Date of creation: 2001
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Handle: RePEc:zbw:zewdip:5362

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Related research
Keywords: environmental taxation; imperfect competition; structural change;

Find related papers by JEL classification:
D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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