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The Welfare Effects of Reversed Border Tax Adjustments as a Remedy under Unilateral Environmental Taxation

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Listed:
  • R. Seymore
  • M. Mabugu
  • J. H. van Heerden

Abstract

Border Tax Adjustments (BTAs) resurfaced recently in national policy debates as a possible measure to counter the anti-competitiveness effect of unilateral environmental taxes. There seems to be no consensus in the literature on the effectiveness of BTAs under environmental taxes. This paper aims to provide a theoretical Heckscher-Ohlin analysis that not only challenges the effectiveness of BTAs, but also proposes an alternative approach to counter the anti-competitiveness effect of unilateral environmental taxes. Using conventional Heckscher-Ohlin methodology, in a small country, we show that policy makers should, instead of implementing BTAs, consider the opposite of BTAs to mitigate the anti-competitiveness effects of environmental taxes. We show that gains from trade, due to a reduction in import tariffs, could, under certain assumptions, offset the initial tax induced welfare loss.

Suggested Citation

  • R. Seymore & M. Mabugu & J. H. van Heerden, 2012. "The Welfare Effects of Reversed Border Tax Adjustments as a Remedy under Unilateral Environmental Taxation," Energy & Environment, , vol. 23(8), pages 1209-1220, December.
    • Handle: RePEc:sae:engenv:v:23:y:2012:i:8:p:1209-1220
    DOI: 10.1260/0958-305X.23.8.1209
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    References listed on IDEAS

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