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Biofuel Subsidies and International Trade

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  • Subhayu Bandyopadhyay
  • Sumon Bhaumik
  • Howard J. Wall

Abstract

This 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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Suggested Citation

  • Subhayu Bandyopadhyay & Sumon Bhaumik & Howard J. Wall, 2013. "Biofuel Subsidies and International Trade," Economics and Politics, Wiley Blackwell, vol. 25(2), pages 181-199, July.
  • Handle: RePEc:bla:ecopol:v:25:y:2013:i:2:p:181-199
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    File URL: http://hdl.handle.net/10.1111/ecpo.12009
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Does it make sense to subsidize biofuels?
      by Economic Logician in Economic Logic on 2011-06-07 19:52:00

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    Cited by:

    1. Wei, Wenjie, 2014. "Welfare and Environmental Effects of Subsidies and Tariffs in North-South Trade in Renewable Energy Equipment," 2014 Conference (58th), February 4-7, 2014, Port Macquarie, Australia 165887, Australian Agricultural and Resource Economics Society.
    2. Jussila Hammes , Johanna, 2014. "A biofuel mandate and a low carbon fuel standard with ‘double counting’," Working papers in Transport Economics 2014:19, CTS - Centre for Transport Studies Stockholm (KTH and VTI).

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    More about this item

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • F1 - International Economics - - Trade

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