Ecological Dumping under Monopolistic Competition
The competitive choice of emission taxes by two governments is analysed in a model of monopolistic competition with capital mobility where pollution externalities are regional. Assuming that governments have no other policy instrument apart from emission taxes at their disposal, I show that governments choose inefficiently low (high) taxes if the importance of emissions in production is small (large) relative to transport costs and the mark-up. In contrast to the previous literature, the marginal disutility of pollution is not among the parameters which separate the non-cooperative choice of emission taxes from the social planner's choice. Copyright 2001 by The editors of the Scandinavian Journal of Economics.
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Volume (Year): 103 (2001)
Issue (Month): 4 (December)
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