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Environmental Taxation in Open Economies: Unilateralism or Partial Harmonization

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Listed:
  • Helmuth Cremer

    () (University of Toulouse)

  • Firouz Gahvari

    (Department of Economics, University of Illinois at Urbana-Champaign)

Abstract

There are two reasons why countries might set weak environmental policies: transboundary pollution and concerns for competitiveness. This article explores the full interactions between these two features within a unified general equilibrium framework. First, we show that competitive concerns change the structure of output taxes but not that of emission taxes. They lead to a lowering of output taxes, lower polluting good prices, an increase in emission taxes, adoption of less (or same) polluting technologies, increased aggregate emissions, and lower overall welfare levels. Second, we show that partially harmonizing commodity taxes, above their unrestricted Nash equilibrium value, can potentially hurt as well as improve the pollution technology, overall quality of the environment and welfare. The three attributes move positively together. On the other hand, harmonizing of emission taxes above their Nash equilibrium values appear to always lead to improvements in the environment and welfare via adoption of cleaner technologies.

Suggested Citation

  • Helmuth Cremer & Firouz Gahvari, 2005. "Environmental Taxation in Open Economies: Unilateralism or Partial Harmonization," Southern Economic Journal, Southern Economic Association, vol. 72(2), pages 352-371, October.
  • Handle: RePEc:sej:ancoec:v:72:2:y:2005:p:352-371
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Michael S. Michael & Panos Hatzipanayotou, 2013. "Cooperative and Non-Cooperative Equilibrium Consumption Taxes in the Presence of Cross-Border Pollution," CESifo Working Paper Series 4501, CESifo Group Munich.
    2. Aronsson, Thomas & Sjögren, Tomas, 2017. "Optimal Taxation, Redistribution, and Environmental Externalities," Umeå Economic Studies 950, Umeå University, Department of Economics.
    3. Aronsson, Thomas & Persson, Lars & Sjögren, Tomas, 2006. "Optimal Taxation and Transboundary Externalities - Are Endogenous World Market Prices Important?," Umeå Economic Studies 699, Umeå University, Department of Economics.
    4. Calbick, K.S. & Gunton, Thomas, 2014. "Differences among OECD countries’ GHG emissions: Causes and policy implications," Energy Policy, Elsevier, vol. 67(C), pages 895-902.
    5. Ganelli, Giovanni & Tervala, Juha, 2011. "International transmission of environmental policy: A New Keynesian perspective," Ecological Economics, Elsevier, vol. 70(11), pages 2070-2082, September.
    6. Cristina Grazia & François Gusdorf & Abdelhakim Hammoudi, 2014. "Climate Change, Heterogeneities, and Stability of International Fiscal Harmonization," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(4), pages 579-603, August.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • F15 - International Economics - - Trade - - - Economic Integration

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