Revenue-Neutral Environmental Tariff Reform, Growth, and Welfare
This paper analyzes the growth and welfare effects of revenue-neutral tariff reform in a small open endogenous growth model with environmental externalities. As is the case in countries that depend primarily on imported energy, the employment of a foreign intermediate good causes negative environmental externalities in production. This paper shows that substituting a tariff on the foreign intermediate good for a tariff on the foreign consumption good in a revenue-neutral way raises the growth rate and the welfare, if the environmental externality is sufficiently strong and if the elasticity of substitution between inputs lies within a certain range. Copyright 2005 International Monetary Fund.
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Volume (Year): 13 (2005)
Issue (Month): 5 (November)
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